Inflation adds to tough times
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Bill Horne,
Monday, March 3rd, 2008 |
Energy for our homes, fuel oil and electric, rose by 33 percent and 5 percent, respectively. Food as a total only rose by 5 percent; but when I select for certain items that most of us use every day, it is a lot higher. For example, bread, milk, eggs, cheese, fresh fruits and vegetables rose in cost by more than 15 percent...
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Folks, the inflation numbers for 2007 are beginning to be reported. I know numbers are usually boring but some of the following are actually very interesting.
Our inflation rate is determined by the cost of a so-called basket of approximately 140 items. The price of these items is compared to the price of these same items one year ago. Each individual's inflations rate is different because we each have our own unique spending habits.
The numbers that follow are the average for all of us, and I have rounded off to the nearest one percent in most cases.
The inflation rate for 2007 was 4.1 percent. This means that for every dollar that we spent a year ago, we now have to spend a $1.05 to buy the same items. This is the largest jump in inflation since 1991. Last year, for example, inflation was 2.5 percent.
Of the 140 items that are studied some items drop in price and some items increase in price. Last year, 37 items dropped and 103 rose in price. However, the things that affect the families the most in our area of the country show dramatic increases.
Energy for our homes, fuel oil and electric, rose by 33 percent and 5 percent, respectively. Food as a total only rose by 5 percent; but when I select for certain items that most of us use every day, it is a lot higher. For example, bread, milk, eggs, cheese, fresh fruits and vegetables rose in cost by more than 15 percent.
Transportation costs only grew by 8 percent; but if you only look at gasoline prices, which affect most of us on a daily basis - gasoline rose 30 percent this past year. But 30 percent is just a number. With gasoline prices currently at $3 a gallon, what really happened is that the price per gallon climbed about 70 cents from $2.30 to $3.
The big three, food, housing and energy make up about three of every four dollars that we spend. So, they are obviously the items that squeeze a families budget the most when they increase in cost. They are also the items that we cannot do without.
Spending is just part of our family budget equation. The other part is our income. Right now, the squeeze on our income is just about the same as the squeeze on the cost of our purchases.
The difference though is that we all feel the increase in inflation, but some of us feel the pain of job loss, wage reduction, or the loss of benefits a lot more than others.
And now it looks like job loss will become an even larger problem. Our total employment numbers dropped by 17,000 in January and although that doesn't sound like a lot, we have to keep sight of the fact that we bring to the labor market about 1/10th of 1 percent of our workforce, or 200,000, new employees each month.
This means that we have the 17,000 plus 200,000 new workers looking for jobs just in January. The "powers that be" don't think that it is important to tell us the whole story.
I am going to interrupt myself here to show another example of a situation where we are not given the whole story. The anti-recession measure that is going to send money to all tax filers is being shown by the government as a reduction in income instead of an increase in spending. This "creative accounting" reduces the actual income and the actual spending for the government by approximately $160 billion of the checks being sent to us.
There is always some inflation, unless of course we go into a deep recession or a depression, but the most important thing to the middle class is that their wages have been eroding.
This has happened in several ways. Manufacturing and service jobs have been taken away from us and given to workers in other countries. These are countries like India and Communist China.
Many people have worked for years without raises. Also, many people have had their wages cut or their hours reduced. Other people have lost their company paid benefits, such as insurance, and they must now pay for these themselves.
Even economists that have no empathy or sympathy for workers, economists who have always supported large corporations, are beginning to worry about the effect that the continuing drop in wages is having on our economy.
We, as has been said before, cannot all work selling each other hamburgers. We must have manufacturing. Manufacturing is the heart of all economies. This is true at the national level just as it is for states and local communities.
During January 2008, we lost another 28,000 manufacturing jobs. This brought the total for the past 10 months up to nearly 270,000 lost manufacturing jobs.
Manufacturing jobs produce wealth for the country as well as good jobs for our citizens.
Folks, there used to be battle cries to "buy American." I don't hear much of that anymore. What I do hear is that American goods cost too much. But folks we are on a downhill run here. The less our wages are the less we can afford to buy American. The less we buy American the lower our wages become. And on, and on, and on.
So, when we look at inflation, tax increases, and wage loss all put together, we can see why families are seriously struggling and now we hear that in the very near future gasoline is going to hit $4 per gallon.
Bill Horne is a professor of economics at Southern State Community College and a columnist for The Times-Gazette. |
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