Purchasing Power of The Dollar Goes WHOOSH!

The comments below are an edited and abridged synopsis of an article by Wolf Richter

In the US, the broadest Consumer Price Index (CPI-U) jumped by 0.5% in December from November, and by 7.04% from a year ago, the highest since June 1982, according to data released by the Bureau of Labor Statistics.

Purchasing Power of The Dollar Goes WHOOSH! - BullionBuzz - Nick's Top Six
Woman research finances for shopping. Woman’s hand holding magnifying glass over shopping cart with money. Isolated on white.

But there’s a big difference between now and 1982. Now, the inflation index is spiking and has been getting worse month after month; in 1982, inflation was coming down. The last time inflation spiked like this on the way up and broke through the 7% mark was in June 1978.

By a narrower measure, the Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W), the index used for Social Security COLAs, spiked by 7.8%, the worst since January 1982.

Inflation without food and energy—tracked by core CPI—spiked by 5.5%, the most since February 1991. Food and energy prices can move with the volatile prices of the underlying commodities, and there have been some big surges among those commodities. But this core CPI shows how deep inflation has moved into the economy beyond prices that depend on volatile commodities.

So far, the Fed has refused to deal with inflation. It is still repressing short-term interest rates to near 0%, and it’s still printing money in large amounts.

The effective federal funds rate (EFFR), which the Fed targets with its interest rate policy, is now at 0.08%. With CPI inflation at 7.04%, the inflation-adjusted or real EFFR is a negative 6.96%, the most negative real EFFR in the data going back to 1954, the hallmark of the most reckless Fed ever.

The purchasing power of the consumer’s US dollar dropped further—that’s what inflation in consumer prices means. Inflation is the loss of the purchasing power of the dollar and everything denominated in dollars, such as wages and salaries. By December 2021, the purchasing power of $100 in January 2000 dwindled to $60.60.

Other topics up for discussion: Rents are starting to jump; food costs; energy costs; and used cars and truck prices.

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