The Cost of Inflation: $709 a Month

The Price of Inflation: $709 a Month, Report Says

Thanks to the inflationary surge that kicked off during the Covid-19 pandemic, the typical American household is spending hundreds of dollars more per month than it did two years ago for the same basket of goods, according to Moody’s Analytics chief economist Mark Zandi.

"The July CPI report was great," Zandi said on social media, referring to data released this week indicating that inflation continues to moderate. At the same time, "the high inflation of the past 2+ years has done lots of economic damage," he added. "Due to the high inflation, the typical household spent $202 more in July than they did a year ago to buy the same goods and services. And they spent $709 more than they did 2 years ago."

The household spending numbers — driven in large part by higher housing costs but also by rising prices for food, cars and services — could play a major role in the big gap between the positive outlook most economists report and the gloomier attitude on the economy recorded in most polls. Put simply, most things cost more, and incomes haven’t kept up, with real earnings still sitting at late 2019 levels.

"Real earnings remain below what they would have been if not for the pandemic and the Russian war, which is weighing on the collective psyche," Zandi told CNN.

Improving expectations: Still, it looks like consumers are starting to notice the moderation in inflation. Expectations for inflation fell in early August, according to a survey from the University of Michigan. Americans expect to see inflation at 3.3% over the next year, down from the 3.4% rate expected in July. And over the next five to 10 years, U.S. consumers expect to see inflation at 2.9%, down from 3.0% expected last month.

"Consumers have exhibited greater confidence that inflation will indeed continue to slow both in the short and long run," survey director Joanne Hsu said, per Bloomberg. "These trends, coupled with the easing expectations themselves, suggest that consumers believe inflation has turned a corner."

The Shifting GOP View on Entitlements

Nate Cohn, The New York Times’s chief political analyst, wrote this week that Donald Trump has definitively put an end to the Republican Party of Ronald Reagan and the coalition that supported it.

"For more than 30 years, the Republican Party was defined by Ronald Reagan’s famous three-legged stool: a coalition of fiscal conservatives, social conservatives and national security hawks," Cohn wrote. "Today, a majority of Republicans oppose many of the positions that defined the party as recently as a decade ago, according to a New York Times/Siena College poll released last week."

The shift away from Reagan-Bush conservatism can be seen on some social issues, as Republican opposition to same-sex marriage has fallen dramatically, but they are also reflected in a growing "America First" isolationist foreign policy and, most notably in terms of our fiscal focus, a much different attitude toward entitlement programs.

Trump, Cohn wrote, "ran against the fiscal conservatives, epitomized by Paul Ryan and Mitt Romney, who would cut entitlement spending to reduce the debt." And the recent New York Times/Siena College polling finds that just 29% of Republicans now prefer reducing debt to protecting entitlements, down from more than 60% in 2005. (The Times notes that the 2005 polling asked specifically about Social Security privatization; when Pew later asked the question used in the Times/Siena survey in 2013, 53 percent of Republican-leaners preferred debt reduction — so the shift has clearly been dramatic.)

Cohn notes that even among those Reaganite Republicans, a majority still favor Trump, offering nearly the same level of support as the rest of the GOP. But social issues may explain that more than anything else. "Republican voters who oppose same-sex marriage and abortion offer Mr. Trump even greater support than voters with more moderate views on these issues," Cohn explains. "This seems to cancel out the more modest reservations traditional conservatives have about Mr. Trump’s views on foreign affairs and entitlements."

The bottom line: Republicans may be divided on some key issues, but the party has clearly shifted away from some traditionally conservative positions and, as Cohn notes, "voters are siding with Mr. Trump’s populist conservatism over the positions taken by Mr. Reagan and Mr. Bush."

Number of the Day: $1.2 Billion

Coral Davenport of The New York Times reports: "The Biden administration will spend $1.2 billion to help build the nation’s first two commercial-scale plants to vacuum carbon dioxide pollution from the atmosphere, a nascent technology that some scientists say could be a breakthrough in the fight against global warming, but that others fear is an extravagant boondoggle."

The two projects are in Texas and Louisiana.

"The Biden administration plans to award a total of $3.5 billion to direct air capture hubs across the country," The Washington Post’s Evan Halper notes. "There are at least 11 projects vying for the cash infusion."

Fiscal News Roundup

• House GOP Plans Talks as Shutdown Deadline Looms – Politico
• House Republicans Grappling With Path Ahead on Government Funding – CNN
• US Awards $1.2 Billion to Oxy, Climeworks-Led Carbon Air Capture Hubs – Reuters
• US Inflation Means Families Are Spending $709 More per Month Than Two Years Ago – CNN
• Yellow Says It Will Repay Federal Debt. Legal Experts Are Skeptical – New York Times
• IRS Cannot Find Millions of Backup Tax Records, Watchdog Says – CNN

Views and Analysis

• Larry Summers Is Still Concerned – Jordan Weissmann, Semafor
• Housing Is Fed's Secret Weapon in Battle Against Inflation – Karl W. Smith, Bloomberg
• The End of Zero Interest Rates – Jeffrey Frankel, Project Syndicate
• Why Is the Fed So Obsessed With 2 Percent Inflation? – Timothy Noah, New Republic
• Trump Didn’t Hijack Reagan’s GOP; It Was Never Fully His – Ed Kilgore, New York