Bidenflation At 19.4% Hammers Americans, Crushing Purchasing Power

• Bidenflation at 19.4% squeezes Americans’ budgets
• Fifth consecutive month of increase
• Annualized Bidenflation steady at 5.8%
• Core prices are stubborn at 3.4%
• RELATED: June Swoon: Economic Confidence Slumps As Personal Financial Outlook Dims - RealClearMarkets/TIPP

Sen. John Kennedy (R-La.) spoke on the Senate floor about how persistent inflation has depleted personal savings and driven many Louisianians into credit card debt. He noted that inflation has cost the average Louisiana family $22,166 since President Biden took office.

The Senator said:

I realize there is a yawning disconnect between what President Biden says and what my people in Louisiana are experiencing. There is. President Biden says that the economy is just fine. He says the economy is just wonderful. And I’ll tell you what my people say. My people say, ‘With respect, Mr. President, you need to put down the bong because, in our state, we are paying more to live worse. And we're not going to be able to retire because of you, Mr. President, until four years after we’re dead.’ 

The dark reality of Bidenomics is the alarming 19.4% inflation under the President’s watch, which is 5.8% annually. When he took office, inflation was at just 1.4%. Since March 2021, it has stayed above the Federal Reserve's 2% target (39 consecutive months.).

Under Biden, the federal debt has increased by $6.9 trillion. The Federal Reserve printed money out of nothing to finance his spending spree. The increased money supply without a corresponding increase in goods and services reduced the value of each dollar, causing prices to rise quickly and leading to high inflation, effectively acting as a hidden tax on everyone.

Prices have increased by 19.4%, while real wages have declined by 2.1%. Average hourly earnings for all employees dropped 2.1% to $11.15 in May 2024 from $11.39 in January 2021, when Biden took office.

According to Mark Zandi, the chief economist at Moody's Analytics, the typical U.S. household now requires $1,069 more each month (equivalent to $12,828 annually) compared to three years ago, $784 more per month compared to two years ago, and an additional $227 per month compared to last year.

Many Americans are forced to take on second jobs or side hustles to make ends meet. A recent GOBankingRates survey found that about four in ten adults continue to need side jobs.

Credit card debt and delinquencies are surging amid high interest rates. The share of credit card debt over 90 days overdue hit 10.7% in Q1 2024, the highest in 12 years, up from 8.2% the previous year. Total credit card debt rose to $1.12 trillion. According to recent TransUnion data, an American borrower's average credit card debt ballooned to $6,218 in Q1 2024, an 8.5% rise from the previous year. The average credit card APR hit a record 24.8%.

Housing affordability has also collapsed under the weight of Bidenomics, and due to skyrocketing home prices and high mortgage rates, it is likely to become a significant issue in the 2024 election.

Median home prices have increased by 28% since Biden took office, and the home price-to-income ratio has reached a record high of nearly 6-to-1. The monthly mortgage payment on a median-price home has increased 115%. According to a recent analysis by real estate site Redfin, prospective homebuyers need an annual income of $113,520 to afford a typical house in the U.S., which is 35% higher than the average household income of $84,072. The last time the typical household income exceeded the amount needed to afford a median home was in February 2021, ironically the month after Biden took office.

Nearly half of all renters spend more than 30% of their income on rent, with a quarter spending over 50%, making it difficult to save for a down payment.

Inflation is hitting wallets hard. According to a recent LendingTree survey, nearly 80% of Americans now consider fast food a 'luxury' due to high prices. The survey found that 78% of consumers view fast food as a luxury purchase because of rising costs, with 62% eating it less frequently.

Therefore, it is unsurprising that inflation and food prices emerged as top economic issues among Americans in a recent nationwide TIPP Poll.

CPI Report

The government's Consumer Price Index (CPI), released on Wednesday, showed a 3.3% year-over-year price increase from May 2023 to May 2024. 

The CPI rate had declined steadily for 12 consecutive months from a 40-year high of 9.1% in June 2022 to 3.0% in June 2023. In July, it broke that run and increased to 3.2%. Since then, it has moved sideways in the 3.1% to 3.7% range.

After adjusting for seasonality, the Consumer Price Index (CPI) stayed stable, with a 0.0% increase between April 2024 and May 2024. During the same period, food prices increased by  0.1%, energy prices declined by 2.0%, and core prices (all items except food and energy) increased by 0.2%.

If you dig deeper, you will notice that the apparent improvement in the inflation situation is an illusion. The CPI Index increased from 313.55 in April to 314.07 in May this year, a 0.17% increase. However, it had increased at a sharper rate of 0.25% during the same period last year, from 303.36 in April to 304.13 in May. The "base effect" creates the illusion of improvement, making it seem as though the decrease in the inflation rate from 3.4% in April to 3.3% in May is an improvement, even though inflation persists at the same or worse level on the CPI Index. So far, this observation has not been widely noted by Biden's economic advisors or the media.

TIPP CPI

We developed the TIPP CPI, a metric that measures the rate of change using February 2021, the month after President Biden's inauguration, as the base. All TIPP CPI measures are anchored to this month, making them exclusive to the economy under President Biden's watch.

What is the motivation behind the TIPP CPI?

Although prices aren't rising as quickly as before, today's inflation is adding to past increases, making it even harder for Americans to manage their expenses. The BLS CPI rate doesn't accurately capture Americans’ inflation struggles.

The official BLS CPI year-over-year calculations compare prices to already inflated bases, and these statistics could mask the full impact. Further, the media and some economists frequently use the low CPI rate to present a rosy economic outlook supporting Biden’s policies.

In contrast, the TIPP CPI rate offers a clearer understanding of Americans’ economic challenges under President Biden. We use the relevant data from the Bureau of Labor Statistics (BLS) to calculate the TIPP CPI, but we adjust the period to Biden's tenure. When discussing the TIPP CPI and the BLS CPI, we convert the index numbers into percentage changes to better understand and compare them. CPIs are like index numbers that show how prices affect people's lives, similar to how the Dow Jones Industrial Average reflects the stock market.

Bidenflation, measured by the TIPP CPI using the same underlying data, increased to 19.4% in May. It was 19.2% in April, 18.8% in March, 18.0% in February, 17.3% in January, and 16.6% in December.

TIPP CPI vs. BLS CPI

The following two charts present details about the new metric.

For May 2024, the BLS reported a 3.3% annual CPI increase. Compare this to the TIPP CPI of 19.4% - a 16.1-point difference. Prices have increased by 19.4% since President Biden took office. On an annual basis, TIPP CPI is 5.8%.

Food prices increased by 21.3%, according to TIPP, under Biden, compared to only 2.1% as per BLS CPI, a difference of 19.2 points.

TIPP CPI data show that Energy prices increased by 36.0%. But, according to the BLS CPI, energy prices rose by 3.7%. The difference between the two is a whopping 32.3 points.

The Core CPI measures the price increase for all items, excluding food and energy. The Core TIPP CPI is 17.7% compared to 3.4% BLS CPI, a 14.3-point difference.

Further, gasoline prices have increased by 44.8% since President Biden took office, whereas the BLS CPI shows that gasoline prices have increased by 2.2%, a difference of 42.6 points.

Shelter costs rose by 21.4% under Biden’s watch, compared to the BLS reading of 5.4%, a difference of 15.9 points.

TIPP CPI finds that Used car prices have risen by 20.5% during this President’s term. Meanwhile, the BLS CPI reports that the prices have dropped 9.3%, a difference of 29.8 points.

Air ticket inflation is 42.5% compared to the BLS CPI’s finding of an improvement of 5.9%, a difference of 48.3 points.

The latest TIPP Poll, completed at the end of May, shows nearly nine in ten (84%) survey respondents are concerned about inflation. As the chart below shows, the concern is shared by all income levels.

Since January 2022, inflation concerns have stayed above 80%. The "very concerned" share has been at least 50% since March 2022, i.e., for the past twenty-eight months.

Over half (57%) say their wages have not kept up with inflation, while only one in five (19%) say their income has. Since December 2023, this statistic has moved in a tight 18% to 21% range.

Our data shows that households in higher income brackets are more likely to say that their earnings have kept pace with inflation: 27% for $75K+, compared to 16% for under $30K and 17% for $30K—$50K and $50K—$75K households.

Nominal wages represent the amount of money one earns without considering changes in the cost of living. On the other hand, real wages consider inflation and measure the purchasing power of wages. Real wages provide a more accurate reflection of what is affordable with the income earned by factoring in the changes in the cost of living.

Real weekly wages, measured year-over-year, showed negative readings for 26 out of the 40 months during the Biden presidency from February 2021 to May 2024. The 26-month negative streak was broken in June. The measure has posted positive readings for 12 months, from June 2023 and May 2024.

As a result of inflation, Americans are cutting back on household spending.

They are cutting back on eating out (80%), entertainment (79%), purchasing big-ticket items (77%), holiday/vacation travel (76%), and memberships/subscriptions (71%).

Nearly two-thirds (65%) are cutting back on charity giving. Over one-half (61%) of households spend less on groceries. The high gasoline prices forced 56% to cut back on local driving.

The cutbacks are more prevalent among lower-income households than their higher-income counterparts.

Inflation Direction

The chart below compares the 12-month average of monthly changes against the 6-month and the 3-month averages. We also show the reading for May 2024.

The 12-month average considers 12 data points and presents a long-term reference, while the six-month and three-month averages consider recent data points.

Typically, we compare the data from May 2024 to the three-month average to gain a clearer perspective. In May 2024, the price increase for All items was stable at 0.0%, less than the three-month average of 0.23%. This shows an improvement in May.

Meanwhile, the three-month average of 0.23% is smaller than the six-month average of 0.27%, indicating a recent slowdown over the last three months. Based on the May reading, we can say that inflation is slowing down. 

In May, Food prices increased by 0.1%, higher than the 3-month average of 0.07%. However, the 3-month average is lower than the 6-month average of 0.13%. In summary, it presents a mixed picture.

Meanwhile, Energy prices declined by 0.20%, smaller than the three-month increase of 0.07%, indicating a slowdown. The three-month average decreased compared to the 6-month average of 0.23% and the twelve-month average of 0.43%. In summary, it presents a positive picture.

All items less food and energy, known as "core inflation," was 0.20%, lower than the three-month average of 0.30%. Further, the three-month average of 0.30% was smaller than the six-month average of 0.33%. The data here again shows improvement.

In summary, except for food, we witnessed an improvement in energy prices, core items, and all items in May.

Based on our trend analysis, May was a good month. 

Monetary Policy

The Federal Reserve's ongoing efforts to control inflation by maintaining high interest rates contribute to the financial strain.

Since March 2022, the Fed has raised interest rates 11 consecutive times, bringing its benchmark interest rate to 5.25%, the highest level in 22 years.

With the core CPI entrenched at 3.4% and geopolitical tensions that could lead to volatility in the energy markets, we are unsure of what lies ahead. We believe it won't be easy to bring CPI inflation down to the Fed's target of 2.0%, and more rate hikes may be needed.

Federal Reserve Chair Jerome Powell confessed at a press conference this week that the central bank is not yet confident about cutting rates. He projected one cut for the year.

In an election year, the Fed must balance rate cut pressures to help Biden's reelection and the larger interest of taming inflation.

Fiscal Policy

The national debt is $34.67 trillion, according to the Debt to the Penny dataset, which the Treasury updates daily. For the current fiscal year, which began in October 2023, the U.S. is expected to pay over $1 trillion in interest, more than the U.S. defense budget.

Biden wants a $7.3 trillion budget for the next year, which means more borrowing and more inflation.

Most Americans are concerned about the sustainability of this trajectory. The high interest rates are also hurting Americans and sapping their confidence.

Monetary policy alone can’t fix inflation without fiscal austerity—a lesson President Biden would never learn. Inflation is here to stay as long as Biden pursues a loose fiscal policy. Coupled with a slowing economy, “the stag,” expect Bidenflation to transform into stagflation.

To access the TIPP CPI readings each month, you can visit tippinsights.com. We'll publish the TIPP CPI and our analysis in the days following the Bureau of Labor Statistics (BLS) report. The upcoming release of TIPP CPI is on July 12, 2024. We'll also post a spreadsheet in our store for download.

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