Inflation Killing U.S. Consumers as Wages Stagnate

Montreal, Canada

One of the biggest bear markets remains in U.S. wages. And with the real inflation rate probably closer to 8% or more and not the phony 2.1% reported by the government, real incomes are stagnating across the United States. Worse, add whopping commodity inflation to the picture and the situation for wage earners is growing desperate.

Last night after finishing my workout at the gym, I stopped to fill my SUV. It cost me a sickening C$120 ($124.30) to fill my gas tank – the size of the U.S.S. Enterprise it’s so darn big! What really irks me is that Canada is a net exporter of oil and yet we’re paying all sorts of taxes for filling our gas tanks. The Norwegians also have the same problem.

I earn an above-average income. I feel the pain at the pumps but fortunately, it doesn’t cramp my lifestyle.

What about the millions of people just getting by pay-check to pay-check or even unemployed? Surging commodities prices are absolutely the worst thing for the consumer. Food prices are running wild with the United Nations’ Food & Agriculture Organization Index hitting new highs every month since late last year.

Adding insult to injury, personal incomes have been declining over the last eight months even as retail sales recover. So the consumer is spending again, and that’s important for the American economy because they’re more than 65% of GDP.

But the bad news is that consumers are spending more than their growth in incomes. That’s not sustainable. It’s almost like we’re back to the good ole’ days again when consumers just spent money even though they couldn’t afford to grow their debts.

I’m not sure about you, but commodities weren’t going gangbusters in 2010 until the Fed launched QE II. The whole world is lunging after risk again and commodities are flying.

Real inflation will become a problem for the Fed when labor markets recover and wages begin to rise. Judging by the fragmented state of this post-2009 recovery and businesses’ reluctance to hire, I suspect the United States will muddle along with stagflation and possibly, several more episodes of quantitative easing as the Fed conjures liquidity every time the economy hits a pothole.

Meanwhile, the poor, unsuspecting wage earner is making less and less after subtracting the real inflation rate. And individuals, especially retirees, are struggling to make ends meet with near zero percent interest rates as the Fed almost forces them back into the market for yield.

The worst enemy of the people is not Congress. It’s the Fed.

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