Let Them Eat Inflation
The Fed's Disconnect from American Financial Struggles
In today’s CPI report, inflation has surged to 3.4% year-over-year, culminating in a staggering 20% increase since January 2021. This alarming rise in prices has compounded the economic strain on individuals and households who were unprepared for such drastic changes.
(The following data below shows the decline of -20% in purchasing power of the US dollar)
Despite the severity of the situation, the Federal Reserve and politicians seem indifferent, reminiscent of the infamous "let them eat cake" remark attributed to Marie Antoinette during the French Revolution.
“Let Them Eat Cake”
The phrase "let them eat cake" is widely, though incorrectly, attributed to Marie Antoinette, the Queen of France during the late 18th century. This phrase has become emblematic of the perceived insensitivity of the French government controlling the currency to the plight of the poor during a period of severe economic inflation hardship and social unrest. France's involvement in the American Revolutionary War had left the country deeply in debt. The government borrowed heavily to finance the war, and by the 1780s, the national debt was immense (like how the US National Debt is near $35 Trillion today). Rising Prices; inflation exacerbated the economic woes. Bread prices were subject to volatile increases due to both shortages and inflationary pressures. The price of bread, which constituted a significant portion of a commoner's budget, often doubled or tripled during this period. This system not only increased the financial strain on the poor but also fueled widespread resentment. The people of France were increasingly discontented with the monarchy's inability to address their suffering. The lavish lifestyle of the royal court at Versailles starkly contrasted with the everyday struggles of the average French citizen. The late 18th-century French inflation crisis, driven by soaring bread prices and economic mismanagement, significantly contributed to the monarchy's downfall and the French Revolution. The myth of Marie Antoinette's "let them eat cake" remark, though historically inaccurate, symbolizes the ruling class's perceived indifference to the common people's suffering, fueling revolutionary fervor in France.
Just this week, when questioned about inflation, Federal Reserve Chairman Jerome Powell commented that people misunderstand what the Federal Reserve is trying to accomplish and what disinflation means. He implied that prices will not revert lower but will instead continue to rise, albeit at a targeted 2% rate rather than the current 3.4%.
Powell stated, "With inflation people are unhappy, go to the store. Prices are up—you tell people inflation is coming down, but they don’t understand that the prices of all the things you buy haven’t come down. They are not wrong & they are suffering, especially on the low-income scale." To watch the Full Clip of Jerome Powells Speech, here is the link: Powell Comments
This statement, in essence, suggests that those who haven't adjusted their incomes or financial strategies by an increase of 20% since 2021 are struggling just to keep up with inflation, let alone get ahead of their finances. Inflation has been bad news for workers, who saw earnings fall 0.2% on the month when adjusted for inflation.
Powell's comments highlight a critical issue: many people are finally realizing that disinflation does not mean lower prices. This realization hits the middle class particularly hard, as Powell acknowledged this week, noting they tend to “suffer.” Any hope Americans had for deflation to restore purchasing power and financial stability is now long gone. The comparison to Marie Antoinette's "let them eat cake" is stark, emphasizing the disconnect between those in power and the economic realities faced by ordinary Americans. For many, affording basic daily necessities has become increasingly challenging, and the prospect of improving their financial situation seems ever more distant.
The Stark Reality of Rising Prices
Let's recap some of the price increases that affect everyone on a regular basis, illustrating the stark difference between the headline year-over-year number of 3.4% and the real world:
Car insurance: 22.6%
Hospital services: 7.7%
Car repairs: 7.6%
Shelter/Rent: 5.7%
Electricity: 5%
Food Away From Home: 4.2%
These numbers average out to an increase of 8.8% on a year over year basis, a figure most people would agree with based on their real-world experiences. The real-world increase is catching many off guard.
The Impact of Inflation Across the Economy
Retail Sales Missing the Cake
Retail sales disappoint as consumers apparently still feel the pinch of higher prices. The advance estimate for retail sales in April showed no change on the month after increasing a downwardly revised 0.6% in March. A 1.2% decline in online receipts held the sales figure back, as did a 0.9% slide in sporting goods and related stores. Motor vehicles and parts dealers posted a 0.8% decrease. Demand for electronics declined as well, although electronics and appliances saw a 1.5% increase.
While nominal retail sales are now declining, the worst part of inflation for Americans is at the gas pump. Gasoline stations, boosted by rising prices at the pump, reported a jump of 3.1%. The so-called control group, which excludes a number of items and feeds into the Commerce Department’s gross domestic product calculations, fell by 0.3%. “The weaker than expected retail sales number is a yellow warning sign of the consumer—and due to the fact inflation is running wild, that transitions into a deeper slowdown it could herald some economic problems that markets would not welcome, and we are currently seeing in consumer related companies like McDonald’s, Starbucks, Home Depot, Apple, and Tesla,” said Greg Crennan, Chief Economic Strategist at Golden Coast Consultants.
You Can’t Eat Shelter Cost
The most expensive single cost for adults is shelter. This month's data is not great for homeowners but it’s even worst news for renters. With 30-year mortgage rates around 7% today, the average monthly mortgage payment is now almost $3,000, the highest ever recorded. Shelter costs, which have been a particular trouble spot for the Federal Reserve, increasing 0.4% for the month and were up 5.5% from a year ago, outpacing the reported 3.4% headline number. In the shelter components, both rent of primary residence and the important owners' equivalent rent (what homeowners think they can get to rent their properties) rose 0.4% on the month. They respectively increased 5.4% and 5.8% on a 12-month basis. Shelter and gasoline contributed over 70% of the increase in the CPI.
The Clock is Ticking
The most recent data suggests that most people are at or going over their tipping point with inflation. Credit card delinquency rates are now going vertical, with 90+ days of delinquency approaching 2008 financial levels at 11%, with the record high during the 2008 crash being 13%. Even more concerning is that 30+ day delinquency is spiking faster, indicating that Americans have hit their tipping point with credit card and auto loan delinquencies approaching close to 10%. This is alarming because credit card debt is over $1 trillion dollars, compared to $400 billion in 2008.
In summary, inflation is taking a significant toll on American households, and the response from those in power has been inadequate. The need for concrete action to address both the rate of inflation and its cumulative impact is urgent. Without such measures, the financial stability of millions of Americans will continue to erode, leaving them struggling to afford even the most basic necessities.
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