Is the U.S. Headed for More Inflation in 2024?

by | Mar 20, 2024 | Biden Administration, Blog Articles, Covid-19, Economy, Energy, Finance, Inflation, Monetary System, Politics, USA

The last few days have produced a bumper crop of disappointing news on inflation. First, we saw that the Consumer Price Index (CPI) grew at 0.4 percent in February, the highest monthly increase since September of last year, resulting in a higher than expected 3.2 percent overall rate of annualized inflation. Costs for shelter and gasoline, two of the most important categories for households, contributed to the majority (sixty percent) of the increase in prices in February. At the same time, the Producer Price Index (PPI) for final demand rose by 0.6 percent for the month, the highest monthly increase since last summer, and contributing to the highest annual rate of increase since September. Import prices have now risen for two months in a row, the first back-to-back monthly increase since the summer of 2023. Finally, global oil prices, a key input into overall price levels, have hit current cycle highs above $80 per barrel in recent days.

These data indicate that inflation is not only far from vanquished, but may be on a path to increase in 2024. This is unfortunate news for most American households, which are struggling to keep up with rising price levels on everything including food, energy, housing, transportation, and medical care. Because we have been living with inflation for three years now, the overall price level is about 20 percent higher than at the start of 2021, and, for certain categories such as energy, prices are up over 70 percent. Real wages (i.e., after inflation) only began rising in 2023, meaning most American households took pay cuts (in terms of their purchasing power) for two years, and remain worse off economically than at the start of the Biden administration.

American families are strained by rising costs, and taking on dangerous levels of debt to make ends meet. Personal savings rates remain near the lowest levels since before the global financial crisis, and household debt grew to the highest level on record at $17.5 trillion at the end of 2023. Families are increasingly using credit card debt to cover daily expenses. Since 2019, the growth in household debt has increased by almost three times the rate of real income growth.

In order to bring some balance back to household finances, prices need to not only stop rising but actually fall to pre-pandemic levels. At this point, there seems no prospect of this happening. In fact, the weight of evidence suggests that inflation will persist through 2024.

While the increase in food costs has slowed recently, and energy prices have declined modestly from previous highs, other categories continue to rise relentlessly. Housing costs, which comprise a substantial portion of most families’ budgets, continue to increase at a nearly six percent annualized level. Transportation costs increased nearly ten percent annual rate in February. Food away from home was up 4.5 percent last month compared with the previous year.

The recent rise in oil prices suggests that the moderation in food and energy price increases is set to reverse in coming weeks. Retail gas prices, which remain higher than a year ago, have been rising for three weeks now, a trend which is likely to continue at least for the next few weeks. The USDA expects that food prices will continue to rise an estimated 2.9 percent in 2024, with risk that they may increase by as much as 5.3 percent. Wall Street’s expectations for inflation have risen by 6.5 percent since December, throwing additional cold water on the idea that the Federal Reserve will be able to reduce interest rates anytime soon.

Yet the most fundamental reason to expect inflation to continue to run too hot in 2024 is that the U.S. money supply, which increased by 40 in the two years following pandemic related monetary handouts and by threefold since the global financial crisis, has not normalized relative to productivity growth. National income growth has not kept up with the ballooning money supply, and the consequence has been a delayed but inevitable rise in the overall price level, a process which only began in 2021. This price level adjustment has not run its course and in fact has a long way to go. At the same time, the Federal government continues to deficit spend at multi-trillion dollar levels, with interest expense alone adding another $1 trillion dollars to the national debt each 100 days or so. Deficit spending that becomes an increasing portion of GDP not only stifles economic growth but acts as a strongly pro-inflationary force and leads to eventual debasement of the currency.

While the Biden administration and many voices in corporate media continue to tout falling inflation, this official propaganda is at best a hopeful mirage if not an outright lie. The unfortunate reality is that inflation will remain persistently high through 2024, and American families will continue to suffer its effects.

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