Thinning Air

Climbing a mountain implies a single direction: up.  Yes, from time to time you might reach a false summit that then dips lower for a bit, but the general direction of travel is up.  Inflation isn’t much different.  During your entire life, there have only been rare exceptions to the rising climb.

Lately a lot of three-piece suit wearing mountaineers have been telling us all that the climbing cost of living is getting easier.  They do this by suggesting inflation is improving, yet many Americans aren’t feeling the reprieve.  Instead, they watch their costs grow, reaching new heights each year.  As one moves further up a mountain, no matter how slow, the air gets thinner, making the next sequence of steps that much harder.  So how high have we come?

According to this article from Bloomberg, the gain has been large and fast.  In the years since the start of the pandemic, prices have increased as much as they did in the previous 10 years before Covid-19 arrived.  It now costs a family $119.27 to purchase the same goods and services as $100 used to afford.  Groceries alone are up 25 percent in the past four years.  Tack on another 35 percent for used cars, 33 percent for auto insurance, and another 20 percent for rent, and it gets easier to understand that the economic mountaineers suggesting inflation is improving feels out of touch with reality.

While scaling a large chunk of granite, it makes sense to bring rations.  But once you start your ascent, you begin using them up.  This is what Americans have been doing with the excess savings they accumulated during the economic shutdown, and signs of depletion are mounting.  Estimates of how much longer they’ll last are varied.  Look for Atlas’ update to this earlier note next Friday as we look at new estimates from the Federal Reserve Bank of San Francisco.  Hint: we may have more rations than first guessed.