The creeping cost of consumer inflation brought to you by a lower US dollar – Americans squeezed as inflation filters into the cost of daily life. The uncertain employment market of low wage work.

There are unintended consequences when policy aims at depreciating a currency in favor of bolstering an ailing banking system.  The Federal Reserve has been on a multi-decade mission to lower the value of the US dollar.  The primary purpose of this mission is to inflate banks into solvency as they try to work their way out of the massive financial crisis.  The amount of troubled real estate loans is still impressive when we look at the temporary sanctuary being provided by the Federal Reserve on their overloaded balance sheet.  This luxury is not afforded to your common household and consequently many Americans are now facing higher and higher costs in items like energy even though demand is slightly lower.  This occurs for a variety of reasons but a main driver is the declining purchasing power of the US dollar.  This permeates over into the employment market that is largely being driven by lower wage positions.  Inflation is creeping back into the economy.

Consumer inflation now edging back up

Since our economy is fantastically debt based and debt is the medium of exchange, more debt is likely to produce higher prices given the same amount of goods.  Typically this equation is leveled at the money supply but our system is one in which debt rules supreme.  While households are in the painful process of deleveraging, debt has increased overall because of banking bailouts but also government spending.  For this, we are seeing consumer inflation pickup:

consumer inflation

The inflation rate has been moving up since the crisis hit a trough in 2009.  Americans are facing higher prices in a variety of sectors including healthcare, energy, food, and higher education.  Ironically inflation is hitting in many of the cornerstones of what was once thought to be part of a middle class lifestyle.  The recent push in prices has largely come from the higher prices in energy:

inflation

Total energy costs are up 7 percent over the last 12 months while wages have gone stagnant.  Gasoline has seen the largest push up in the last year moving up by 12.6 percent.  Looking at food, the total cost of food has gone up by 3.9 percent over the last 12 months.  Of course much of this is synergistic with the rise in energy given that food is transported and also produced with high levels of energy usage.  The interesting point here is that energy usage overall has not necessarily surged in the US to justify this movement.  This is largely being driven by an overall depreciation in the US dollar:

us dollar

The US dollar has lost over 50 percent of its purchasing power since the 1980s.  It is no coincidence that global goods like food and energy are now more expensive.  This is problematic since Americans are seeing little growth in their wages.  The stagnant wage dilemma has been in effect for well over a decade now.

 

Impact of low wage employment

Just take a look at some of the top employment sectors in our economy:
employment by sector

The top three employment fields in our country are:

1.  Office and administrative support work

2.  Sales & Related

3.  Food preparation and serving related

In the past, a large portion of our labor force was in good paying manufacturing positions.  Now, the low wage labor force dominates. This is a major driving force for the slow disappearance of the US middle class.  Some of the higher paying positions require high levels of specialization and schooling, certainly in healthcare and technology positions.  These industries however employ a smaller part of the entire labor force as the chart above indicates.

Overall there are many challenges looming on the horizon.  There is definitely a divide in the country where the middle class is shrinking.  Many of the good paying jobs are in what are known as the STEM fields (science, technology, engineering, math) and on the flip side you have many colleges for example catering to fields that are lower paying yet charging absurd fees pushing many students into enormous debt.  The for-profits in many cases produce degrees that yield very little return once students graduate.

This is why another interesting chart to examine is the number of positions opening up and those being hired:

job openings job hires

While job opening have certainly moved higher up, I find it interesting that actual hires have been rather steady since the recession ended.  Could it be that many of the jobs in demand are simply not finding the needed skills in the current market?  This trend is likely to accelerate and many on the edge of the middle class are being pushed off into the working poor.  46,000,000 Americans are on food stamps even though we are years into a recovery.  Since many of these people have less disposable income and a larger portion of their money goes to food and energy, the massive inflation in these two segments of our economy are going to hit them much deeper.  If you look at banking profits thanks to generous bailouts by the Federal Reserve and subsequent depreciation of the dollar impacting the working poor, you should get a better sense which segment of our population is taking the brunt of this economic restructuring.

 

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6 Comments on this post

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  1. robertsgt40 said:

    “…since the recession ended…”? How do you arrive at that?

    April 2nd, 2012 at 9:56 am
  2. Dave Mowers said:

    I.R.S. figures;

    236,883 or .10% of the U.S. population makes 1 million or more per yr.

    8,274 make 10 million or more per yr.

    959 are billionaires.

    The percentage total of “wealthy” Americans is not 1% it is .003%.

    Only 29 million Americans filed single or joint taxes last year on $70-150,000.00 in annual income (the whole middle class is only 10% of the population now).

    1 in 3 children live in households receiving government support, 1 in 6 adults are receiving government support of some kind.

    Only 113 million Americans filed taxes last yr out of 308.

    If minimum wage kept up with inflation allowing average people to see their standard of living stay the same the minimum wage would $40.00’s an hour today. In Germany no one will even consider a job paying less than $25.00’s and hour and the minimum wage for skilled labor is $45.00’s an hour. German companies still manage to profit every year.

    Capitalism does not work for 99% of the U.S. population because we don’t practice Capitalism here, it is a myth.

    April 2nd, 2012 at 12:38 pm
  3. Hillary said:

    Inflation certainly is taking its toll. As the crisis unfolds more people are going to see much more than just gas prices rising. Its a wonder how the campaign for president hasn’t addressed this issue more. The “Change” hasn’t done a thing and nothing has improved under the current administration. I just hope people will understand exactly what is happening and make better life choices.

    April 3rd, 2012 at 11:08 am
  4. rolf said:

    bring back the OTTOMAN EMPIRE

    April 4th, 2012 at 9:28 am
  5. KENNY G said:

    In other words we are screeeeeeewed and nothings going to change because eventually they will force everybody into same government feeding trought……….they are masters at what they do……..we haven’t seen anything yet,this is only the beginning.

    April 4th, 2012 at 8:14 pm
  6. Agent P said:

    “Capitalism does not work for 99% of the U.S. population because we don’t practice Capitalism here, it is a myth.”

    Kudo’s to Dave Mowers above, because his last sentence here nicely encapsulates the entire ‘zeitgeist’ of our economic dilemma. When Liberty, by way of adherence to strict Constitutional prescription returns – with an overweighted slant towards sound $currency policy and anchoring, we will again have true economic prosperity. Until then, we will continue our slide into a politically-motivated fascistic zombie economy.

    April 19th, 2012 at 12:40 pm

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