Inflation Continues to Decimate Americans’ Wallets

The (not-so) “hidden tax” continues to eat away at Americans’ finances:

WASHINGTON — Prices at the wholesale level surged by a record 9.6 percent in November from a year earlier, an indication of on-going inflation pressures.

The Labor Department said Tuesday that its producer price index, which measures inflation before it reaches consumers, rose 0.8 percent in November after a 0.6 percent monthly gain in October. It was the highest monthly reading in four months.

Food prices, which had fallen 0.3 percent in October, jumped 1.2 percent in November. Energy prices rose 2.6 percent after a 5.3 percent percent rise October.

The 12-month increase in wholesale inflation set a new record, surpassing the old records for 12-month increases of 8.6 percent set in both September and October. The records on wholesale prices go back to 2010.

Core inflation at the wholesale level, which excludes volatile food and energy, rose 0.8 percent in November with core prices up 9.5 percent over the past 12 months.

The increase in wholesale prices was widespread, led by a 1.2 percent increase in the cost of goods and a 0.7 percent rise in the price of services.

In the goods category, the price of iron and steel scrap rose 10.7 percent while the price for gasoline, jet fuel, and industrial chemicals all moved higher. In the food category, the price of fresh fruits and vegetables rose while the price of chickens fell.

The surge in wholesale prices followed news Friday that consumer prices shot up 6.8 percent for the 12 months ending in November, the biggest increase in 39 years, as the price of energy, food, and many other items shot up.

The Federal Reserve, holding its last meeting of the year this week, is expected to announce Wednesday that it will accelerate the pace at which it reduces its monthly bond purchases, preparing the way to begin raising its key benchmark interest rate, possibly by mid-2022 as it seeks to demonstrate its resolve to bring inflation under control.

According to Shadow Government Stats, the real rate of inflation in America right now, if calculated the same way it was in 1980, is 15%:

We are now experiencing inflation not seen since the Stagflation era of the late 1970s and early 1980s.

Back then, interest rates had to be jacked up to all-time high levels for years just to get inflation under control.

If inflation doesn’t come down soon, the Fed will raise interest rates, and it will make it way harder to buy a home–however, who knows what effect higher interest rates will have on the housing market. They could bring housing prices down, potentially significantly.

And stock prices, too. Fear over rising rates is why the stock market has been so choppy as of late.

But the main and more immediate problem for most Americans is simply the inflation itself, not the impending rise in interest rates that will be caused by inflation. Everything is getting more expensive these days.

Another major issue that comes with inflation is that the government has to pay more out in monthly Social Security checks to reflect the increased cost of living. Social Security is chained to inflation (it’s technically called “COLA”: Cost Of Living Adjustment), meaning if inflation goes up, Social Security payouts go up. They have to. There’s no other way.

CNBC just published an article today talking about how Social Security payouts are about to see a 5.9% increase starting next month, which is the largest jump in four decades–and even that isn’t enough to keep pace with the official inflation numbers:

News that inflation rose to a historic high in November probably comes as no surprise to retirees.

But they may be in for another shock when they receive their monthly Social Security checks in January.

The Social Security Administration announced in October that beneficiaries will get a 5.9% boost to their checks in 2022 — the biggest annual cost-of-living adjustment in four decades.

Yet since then, another key measurement for inflation — the Consumer Price Index — has also reached historic highs.

In November, that measurement for a basket of consumer goods and services climbed to a 6.8% year-over-year increase — the highest since 1982.

“At first it was more, ‘Wow, look at how great this is,’” said Kelly LaVigne, vice president of consumer insights at Allianz Life Insurance Company of North America, of reactions to the Social Security COLA for 2022.

“Now it’s a recognition after they see this latest CPI news, ‘Oh, that’s why they did it,’” LaVigne said.

Now, as we just went over, if the government still calculated inflation the way it did in 1980, it would be showing an inflation rate of 15%, not the 6.8% official figure.

There is no way the government could afford to increase Social Security payments by 15%. But since they have to keep Social Security chained to CPI, the obvious solution was to simply water-down the CPI formula so it low-balls inflation figures. Which is why we no longer calculate inflation the same way we did in 1980.

Now, since Social Security is funded by the payroll tax, I’m assuming the payroll tax has to be increased to keep pace with the increased Social Security payouts, right? I tried to find an answer for this but unfortunately there wasn’t much. On the FICA Tax Wikipedia page, it does say the following: “Since 1990, the employee’s share of the Social Security portion of the FICA tax has been 6.2% of gross compensation up to a limit that adjusts with inflation.”

So the amount that the payroll tax will go up due to inflation is capped, but it will go up. But since it’s capped, this means that due to inflation, Social Security is going to run out of money sooner than expected. In August, CNBC reported due to the lockdowns and the virus, Social Security is now projected to run out of money in 2033. But inflation has gotten a lot worse since August, so who knows how this has affected Social Security’s long-term solvency. The payroll tax can go up some in accordance with inflation (yet another tax hike on top of the hidden tax of inflation), but it can’t cover everything if inflation goes up past a certain point.


Senior administration officials said in a press briefing Tuesday afternoon that a spike in deaths among retirement-age Americans in 2020 helped keep the programs’ costs lower than projected. They added that the ultimate, long-term impact of the coronavirus is less clear as costs and revenues return to their extended forecasts. 

One of the very first conspiracy theories that popped into my head once it became clear that Covid is primarily a threat to the elderly was, “If they did this on purpose, part of the reason is probably because they want to kill off the elderly and decrease Social Security payments.”

I certainly hope that is not the case.

At any rate, inflation is making the longterm Social Security math even worse, and it would be downright catastrophic for Social Security if the government still calculated inflation the way they did in 1980.

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