Inflation costs to consumers are real, with an explanation



PolitiFact Iowa is a project of The Daily Iowan’s Ethics & Politics Initiative and PolitiFact to help you find the truth in politics.


Edited by Caleb McCullough and Rylee Wilson

If your time is short

  • Chuck Grassley, R-Iowa, a member of the U.S. Senate Finance Committee and its former chairman, has linked inflation that is costing households an additional $ 175 a month to President Biden.
  • That additional $ 175 per month applies to the median US household income of $ 70,000 and would be lower for lower wages and higher for higher wages.
  • The economist who calculated the figure of $ 175 multiplied $ 70,000 by 3 percentage points, which is the difference between an above-normal inflation rate of just over 2% and the rate of September inflation of 5.4%.

The prodigious Iowa Congressional tweeter, Republican U.S. Senator Chuck Grassley, attempted to put inflation in terms Iowa and others might understand: through their wallet.

“Welcome to 2 Pres Biden’s America where inflation is costing households an extra $ 175 per month”, he wrote on Twitter Tuesday evening October 19.

The Twitter verse was quick to respond:

“Take a rudimentary economics course,” wrote a commentator who posted a graph showing the increase in employment since Biden became president. (He is.)

“Actually, old man… I think we might be paying your bills,” wrote another. (Taxpayers pay wages and benefits.)

“That’s a lie,” wrote another. Not quite, although Grassley’s source for the $ 175 per month says that applies to a salary of $ 70,000. It does not apply to all households.

“My $ 175 per month is derived from the difference between current CPI inflation of over 5% and typical CPI inflation of over 2%, or 3 percentage points, multiplied by income. median of $ 70,000 and divided by 12, “Mark Zandi, chief economist at Moody’s Analytics, wrote in an email to PolitiFact Iowa.” Pretty straightforward. “

Those additional 3 percentage points on $ 70,000 equals $ 2,100 per year.

Zandi said he estimated the current median household income, based on data from the US Census Bureau.

Grassley withdrew Zandi’s assessment from an October 6 New York Post story, the Grassley press office said. The post office The article notes that inflation is at its highest for 30 years, with no way of predicting when it will drop due to uncertain supply chain issues.

The Bureau of Labor Statistics reported in October that the prices of goods, housing and energy all rose from August through September.

Grassley made specific reference to Zandi’s analysis in his tweet, Grassley press secretary Katelyn Schultz wrote in an email to Politifact Iowa.

It is important to know how Zandi calculated the burden of additional costs because the impact of inflation on household purchasing power varies with wages. While the average hourly wage rose 0.2% from August to September, the United States Bureau of Labor Statistics reported on October 13 that the real real hourly wage – that is, corrected for l ‘inflation – was down 0.8% from what it was in September 2020. The calculated loss in purchasing power is consistent with falling real wages, ”Zandi wrote to PolitiFact Iowa.

Disregarding the typical inflation rate when determining the loss in purchasing power could paint an even bleaker but inaccurate picture of what consumers might have expected from their dollars this year.

When you add the unexpected 3 percentage points to the expected inflation of just over 2%, a consumer earning the median of $ 70,000 in January would need $ 73,406.04 at the end of September for the same power. purchase. This works out to $ 283.83 per month if September’s 5.4% rate holds.

Knowing the math is also important because of the political arguments Republicans put forward to blame President Joe Biden. PolitiFact has already spoken about it. Economists said for an article at the end of July that the recent large amounts of new government spending, which Republicans point to when blaming Biden for inflation, began during the Trump administration’s efforts to counteract the financial impact of COVID-19 on the country’s economy.

Two-thirds of the $ 3.4 trillion of the $ 4.7 trillion budgeted for COVID-19 relief occurred under the Trump administration, the PolitiFact analysis showed.

We also reported in early July that Federal Reserve Chairman Jerome H. Powell wanted analysts to have more information before they knew where inflation is ultimately heading. Two months had passed when Powell said in an Aug. 27 speech that inflation was still a cause for concern, but likely to be temporary.

On September 28, Powell told the House Banking, Housing and Urban Affairs Committee and on September 30 the House Financial Services Committee that he still expects inflation to stabilize. , but that might not happen until 2022. “As the economy continues to reopen and rebound in spending, we are seeing upward pressure on prices, especially due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than expected, but they will subside and, as they do, inflation should fall back to our 2% in the longer term, ”he said.

Other factors are taken into account in the assessment of purchasing power. For example, more people have jobs now than in January. Gains were made in leisure and hospitality, professional and business services, retail trade, transportation and warehousing, the Bureau of Labor Statistics reported in October.

Unemployment fell from 5.2% in August to 4.8% in September, according to the report. But that remains above its pre-pandemic level of 3.5% in February 2020, according to the report.

Our decision

Inflation in President Biden’s America is costing households an additional $ 175 per month, Senator Chuck Grassley tweeted to supporters on Oct. 19.

Inflation is currently at an unusually high level, but the figure of $ 175 per household, which has been calculated by a credible economist, is for the median income household, and the impact on other households could be higher or lower by based on total income earned.

There are also a few caveats to note. The current level of inflation is not entirely attributable to Biden’s policies; some of the federal spending increases blamed on inflation were approved on a bipartisan basis during the pandemic and were signed off by Trump.

It should also be noted that wages have increased modestly, helping households cope with some, but almost all, of the price increase.

The statement is correct but requires additional information, so we rate it fairly true.


Sources

Email exchange between PolitiFact Iowa and Katelyn Schultz, press secretary for Senator Chuck Grassley, R-Iowa, October 20-21, 2021

Email exchange between PolitiFact Iowa and Mark Zandi, Chief Economist at Moody’s Analytics, October 20-21, 2021

Twitter, Chuck grassley, October 19, 2021

The Iowan Daily, “Reviews | Chuck Grassley Twitter Rules ”, by Adam Engelbrecht, October 29, 2020

US Bureau of Labor Statistics, “Summary of the Employment Situation,” October 8, 2021

US Bureau of Labor Statistics, “Consumer Price Index Summary,” October 13, 2021

US Bureau of Labor Statistics, “Summary of Real Earnings,” October 13, 2021

US Senate, “Congressional Salaries and Allowances: In Brief,” April 11, 2018

New York Post, “Real Cost of Inflation for the Average American Household: $ 175 More Per Month,” by Lisa Fickenscher, October 6, 2021

CoinNews.net, US inflation calculator

PolitiFact, “Fears of rising inflation are real but complex”, by Lyle Muller, July 1, 2021

PolitiFact, “Blame Joe Biden for Inflation?” Most government spending came earlier ”, by Jon Greenberg, July 29, 2021

US Department of the Treasury, “Covid Relief Spending,” USAspending.gov

Transcript, “Fed Chairman Jerome Powell Press Conference,” June 16, 2021

Transcript, “Monetary Policy in the Era of COVID,” Jerome Powell’s Speech at the Federal Reserve Bank of Kansas City Sponsored “Macroeconomic Policy in an Unequal Economy” Symposium on Economic Policy in Jackson Hole, Wyoming, August 27, 2021

US Bureau of Labor Statistics, “Consumer Price Index Frequently Asked Questions”

US Census Bureau, “Income and Poverty in the United States: 2020,” September 14, 2021

Transcript, Congress testimony, Jerome Powell, September 28-30, 2021

Associated Press, “Powell sees inflation cool, dodging ‘tough situation’,” by Christopher Rugaber, September 30, 2021

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