EC Two Pins Threatening Multiple Asset Bubbles

The Fed Craves More Inflation

  • If we generated some modest inflation, I think we would consider that a success,” –Neel Kashkari 12/2020
  • If we got 3 percent inflation that would not be so bad.” Charles Evans 1/2021
  • “By committing to achieve inflation outcomes that average 2 percent over time, the Committee would make clear in advance that it would accommodate rather than offset modest upward pressures to inflation in what could be described as a process of opportunistic reflation. This approach will help move inflation expectations back to our 2 percent objective, which is critical to preserve conventional policy space.” – Lael Brainard 2/2020

In no uncertain terms, Fed members make it clear, they want more price inflation. Unfortunately, inflation is not best for everyone. Inflation affects different income classes vastly differently. The disparity is most accentuated with necessities, such as food and housing prices.

Food and Housing Inflation

Spending on food and shelter comprise over 75% of the after-tax income of the lowest income classes but only about 25% for the highest income classes. The graphs below, courtesy of Brett Freeze, compare food and shelter spending across multiple income classes. In each illustration, the bar chart on the left shows the total food or shelter expense as a percent of after-tax income. The charts to their right are the sub-components expenditures that comprise the total.

Inequality, Two Pins Threatening Multiple Asset Bubbles

Over the last year, the BLS reported food and beverage prices rose at an average annual rate of 8.84%. For a family in the $15,000 – $29,999 income class, total spending would have to rise by 2.07% on average to consume the same amount of goods and services as a year ago. The increase only accounts for higher food prices. For the highest income class, their change was only .67%.

Housing prices, over the same period, rose on average by 7.07%. For a family in the lowest income class, this one expense pushes their total expenses up by 3.98%. The families in the highest income class will pay 1.42% more.

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