THE DISASTER OF INFLATION–FOR THE BOTTOM 95%

THE DISASTER OF INFLATION–FOR THE BOTTOM 95%

[ Thanks to Obama. .. AVOID this to continue by no voting HILLARY, if she get impunity.]

Posted on http://www.washingtonsblog.com  October 28, 2016 

by Charles Hugh Smith

http://www.washingtonsblog.com/2016/10/disaster-inflation-bottom-95.html#more-62708

Central banks are obsessed with boosting inflation, but the “why inflation is good” arguments make no sense for households being ravaged by inflation. The basic argument is that inflation makes it easier for debtors to service their debts.

But this is only true if income rises along with costs. If income stays flat while costs rise, households lose ground–debt remains a burden as the purchasing power of income plummets.

Central banks and the mainstream media make two fatal errors when discussing inflation.

1. They assume an inflation rate that lumps all costs/prices into one number is meaningful. But the “headline” consumer price index (CPI) is meaningless for two reasons:

A. The “headline” CPI is easily manipulated by underweighting sectors with double-digit cost increases such as higher education, rent and healthcare, and by gaming hedonics and other adjustments.

B. Households and enterprises that are exposed to sectors with double-digit cost increases experience inflation at rates that are far higher than those households and enterprises that have little to no exposure to soaring rents, healthcare premiums and college tuition.

2. They lump all inflation-adjusted household income into one “headline number” of median household income. This is a meaningless number because it combines the top 5% of households that are experiencing strong income gains in the “recovery” with the 95% of households experiencing stagnant or declining purchasing power.

Take a look at these charts:

1-

A better measure of how households are doing is to compare GDP (gross domestic product) and wages: if GDP is rising but household incomes aren’t keeping pace with GDP, then households are doing worse–which is exactly what’s happened in the “recovery”:

2-

The share of GDP devoted to wages is another basic measure of household well-being: the wage/salary share of the economy has been declining for 45 years:  Image address at:  http://www.oftwominds.com/photos2016/wages-GDP5-16a.png

3-

Meanwhile, the top 5% is riding high: notice how the spending of the top 5% has pulled away from the stagnant spending of the bottom 95% during the “recovery”:

4-

Any household paying soaring healthcare premiums and co-pays is being crushed: See image at: http://www.oftwominds.com/photos2016/US-healthcare4.jpg

5-

Ditto for households experiencing double-digit rent increases:  See image at http://www.oftwominds.com/photos2016/rent5-16a.png

Rising inflation crushes the purchasing power of the bottom 95% whose incomes are not rising along with double-digit cost increases in big-ticket expenses. Central banks seeking to boost inflation are waging financial war on the bottom 95% of households.

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Source: http://www.washingtonsblog.com/2016/10/disaster-inflation-bottom-95.html#more-62708

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