If you’re having trouble grasping why inflation is so politically potent, consider that Americans who enjoyed a Fourth of July cookout on Monday paid 17 percent more for their food than last year, according to a survey from the American Farm Bureau Federation.
The official government inflation rate comes from the consumer price index, which measures the prices of a basket of goods that reflect the overall annual consumption of items and services that an average urban household pays for.
As a national average, it can never exactly reflect what a particular household faces in any particular city. It assumes that the average family purchases all these goods and services in the same quantities. But that simply isn’t true, and it unintentionally hides how high inflation is for millions of people.
Prices for the goods that people regularly purchase are rising much faster than those for things they don’t. Food used at home, for example, rose by almost 12 percent over the past year, while gasoline prices jumped by nearly 50 percent. Prices for eggs skyrocketed by more than 32 percent in the last year.
These categories comprise less than 20 percent of the overall CPI, yet they are products that people buy every week. As a result, the political impact of these double-digit increases is likely to be worse than that of infrequently purchased goods, such as visits to the doctor.
But even some of those goods people don’t often purchase likely produce extreme inflation anxiety for some households. Most people don’t move, for example, and the majority of those who have stayed put in the past year likely have mortgages whose repayment amounts don’t fluctuate. But those who did buy a new home almost surely experienced sticker shock. The price of a home has risen by a whopping 40 percent since March 2020, according to the S&P/Case-Shiller National Home Price Index. The nearly 7 million households that purchased a new or existing home in 2021 won’t soon forget the sky-high prices they encountered.
The same is true for people who bought a new or used car in the past year, who paid between 12 and 16 percent more on average than if they bought the same car the year before. Again, this isn’t something most people experienced, since Americans typically hold on to their cars for years. But nearly 58 million used and new vehicles were sold in 2019, the last year with complete data. While businesses likely bought many of these, that means tens of millions of individuals likely ventured out in the past year to purchase a car or truck, and saw those high prices on top of all the other accumulating price increases.
Together, these facts explain why Americans are furious about inflation. Both big-ticket items they purchase infrequently and the everyday items they buy every week are skyrocketing in price. The fact that prices of some goods are only rising slowly or, in the case of televisions and smartphones, are declining doesn’t offset the political impact of the rapid price hikes in more important categories.
The administration’s efforts to combat these hikes are laughably inept or tone-deaf. Blaming price hikes for meat on the lack of competition in the meat packing industry is economically illiterate; the industry did not suddenly become less competitive in the last year, and it’s nonsensical to suppose that all powerful packers would exercise their market power now but not in previous years. Meanwhile, President Biden has issued silly tweets insisting that oil companies reduce prices at the pump, but he continues to pander to the left by refusing to issue new permits for oil drilling off the Atlantic and Pacific coasts.
His tone-deafness on gas prices is especially troubling. He has plaintively asked despots in Saudi Arabia and Venezuela to hike their output rather than encourage U.S. producers to drill more wells. He even recently suggested high gas prices as an opportunity for an “incredible transition” away from fossil fuels. Expect to see that clip in GOP attack ads this fall.
America’s decades-long low inflation adds to the political impact of double-digit price hikes. The official inflation rate hasn’t been this high since December 1981. Only those who are 60 or older have experienced something like this before. For most Americans, it’s the shock of a lifetime. No wonder they are furious. And they are not likely to see any relief before November.