New CPI Data Shows Concerning Signs for the Economy

On Wednesday the consumer price index (CPI) increased 4% from a year earlier, down from 4.9% in April and a 40-year high of 9.1% last June. This is a good sign for the battle against inflation, but it doesn’t tell the whole story.

According to the data released from the Bureau of Labor Statistics (BLS), price increases have slowed significantly but there have been no widespread decreases in prices. This means people are still feeling the effects of inflation. The below graph shows the gap between real earnings and where earnings need to be to keep pace with price increases (nominal).

Real weekly and hourly earnings are down 5% since Jan 2021.

The average family is making an extra $200/wk since Jan '21 but that larger paycheck buys about $100/wk less. This is a $5,600 loss in purchasing power. Meanwhile, interest rate hikes have raised annual borrowing costs another $1,600. The average family effectively $7,200 poorer.

The statistics above might seem bad but buying a home is even worse. On average, the medium monthly home payment has doubled since Jan 2021. To put that in perspective, the average payment is about 12k more a year and 350k more over 30 years (for the same house).

Federal Reserve Pauses Interest Rate Hike.

In the June meeting, the federal reserve decided to pause hiking interest rates after hiking rates for the past year. This is good news for the economy because it means the Fed is seeing signs of economic conditions improving. However, the economy typically doesn’t feel the effects of an interest rate hike for 12-18 months after it happened, so we still have a long road ahead till we’re through this economic downturn and inflationary period.

Follow us on Twitter @Freedomville_ and @Hill_Households for more day-to-day coverage.

Email us questions or reactions @[email protected]