CU Regent Heidi Ganahl reacted to a new federal report showing inflation surging at over 5% in May.
Ganahl said she empathized with young people facing soaring housing costs and gas prices, many of whom have never seen the real impact of inflation in their lifetimes.
CU Regent @heidiganahl reacts to surging inflation:
“I feel for the young people in our country who haven’t sat in gas lines back in the 70s …
— CO Peak Politics (@COpeakpolitics) June 11, 2021
The Labor Department’s consumer price index sky-rocketed 5% year-over-year in May, the largest increase since 2008 when oil was $140 a barrel (crude oil trades around $70 today).
All of this is showing up in higher prices. Over the last 12 months, core inflation excluding food and energy is up 3.8% and much more for used cars (29.7%), airline fares (24.1%), jewelry (14.7%), bikes (10.1%) and footwear (7.1%). Commodity prices from oil to copper to lumber have surged. Higher lumber prices are adding $36,000 to the price of a new home.
What Congress has given in relief payments, inflation is taking away. The Fed says annual inflation only looks high compared to depressed pandemic price levels. But core inflation on an annual basis was 9.2% in May and 5.2% over the first five months of 2021. Most ominously for the political class, rising inflation for the last two months has outstripped wage gains, meaning that real average earnings have fallen.
Housing inflation disproportionately hits first time homebuyers and renters at the low end of the economic spectrum, both groups are overrepresented by younger Americans.
While younger Americans can simply avoid cost increases in airfare or luxury items by holding off on purchases, the choice isn’t so clear when it comes to housing.
As the cost of shelter increases it can have a “cascading effect on extremely low-income renters,” said Andrew Aurand, vice president for research at the National Low Income Housing Coalition.
Research from Aurand’s organization has shown that more than 9.2 million “extremely low-income” renters are cost burdened by their housing, meaning they spent more than a third of their income on shelter-related expenses. Many of these households spend upwards of 50% on housing, leaving little money behind for other purchases.
The alternative for these households would be losing the roof over their heads. In recent years, that has become the reality for many Americans. A 2019 study released by the Trump administration estimated that more than 500,000 people sleep outdoors each night across the country, while many more couch surf or utilize shelters for unhoused people.
The Federal Reserve has limited options to combat inflation.
Typically the Fed could just increase interest rates, but that option seems less appealing with governors across the country like Jared Polis struggling to get people back to work. Higher interest rates typically produces higher unemployment.
In Congress, the obvious choice should be to limit spending. However, Democrats appear undaunted as they still want to pass more than $4 trillion in new federal outlays.
In other words, the Fed’s hands could be tied and prices will continue to increase with little Democrats in D.C. or Colorado can do to stop it so long as they remain committed to running up trillions in new debt.
Of course, Democrats could always consult former President Jimmy Carter who may have a few ideas to combat inflation.
Who doesn’t a miss some ole-fashioned cash burning?