Things are not working out so well for those at the Fed who deny that inflation exists. After all, its job is to keep the currency strong by putting out brush fires of inflationary expectations before they can become a firestorm of price spike fears. And if current consumers' expectations of inflation are any measure, the Fed is not doing its job.
That's according to the Associated Press, which reports that 90% of those it polled expect ballooning costs to squeeze them financially over the next half-year. Consumers have less money than they used to -- the median income is down since 2000 from $61,000 to $60,500. And prices have risen -- food has tripled in many cases and gasoline prices are up to around $4.20 a gallon. But the Fed does not see this -- it measures inflation excluding food and fuel -- and has kept rates at 2%.
And with housing in the tank and lenders in trouble, they can't borrow their way to balancing their budgets. Since the Fed is not controlling inflation, people are coping by cutting back. They are driving less, easing off the air conditioning and heating at home and cutting corners elsewhere. Half are curtailing vacation plans; nearly as many are considering buying cars that burn less gas.
And it's not just those of median incomes and below who are cutting back. Forty percent of families earning $50,000 to $100,000 annually, and one in six earning more than that, expect serious financial hardships from rising gas costs, as do one in three college graduates.
Are you feeling the pain? What are you doing to respond to this cost squeeze? Will it affect who gets your vote in November?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
6-30-2008 @ 12:29PM
w said...
We have hit a wall with our fundamentals.We are looking more like the Soviets in the 50's with moribund industries,corrupt and incompetent bureaucrats, parasitic citizens and elected officials viewing public office as their ticket to economic heaven. 40 years of trying to guarantee equal outcome instead of equal opportunity has turned everyone into opportunists of the moment and the powers that be buy the peasants off with bread and circuses.