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Wolf Street: Purchasing Power of the Dollar Goes WHOOSH!

January 13, 2022
Inflation Gold

Article by Wolf Richter in Wolf Street

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 today.

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

Inflation without food and energy, 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.

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

The purchasing power of the consumer’s 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:

The CPI contains two measures of rent that account for 32% of the CPI. These rent factors are the biggie. They dropped sharply in 2020 and early 2021, then U-turned in June and have been rising every month since, gradually picking up the increases in market rents.

The actual costs of buying a home spiked in 2021 by around 20%, according to the Case-Shiller Home Price Index.

Food costs (14% of overall CPI) jumped 6.3% year-over-year.The sub-index for “beef and veal” jumped by 18.6%. OK, switch to pork, which jumped by 15.1%. OK, switch to chicken, which jumped by 10.4%. OK, switch to “fresh fish and seafood,” which jumped “only” 10.2% ….

Energy costs (7.5% of overall CPI) spiked by 29.3% year-over-year:

  • Gasoline +49.6% year-over-year
  • Utility natural gas to the home: +24.1% year-over-year
  • Electricity service: +10.4% year-over-year.

The CPI for used cars and trucks (3.4% in overall CPI) jumped by 37.3% year-over-year. And it’s still going to get worse over the ......

To read this article in Wolf Street in its entirety and view all revelant charts, click here.

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