CPI Rises 0.4% as Real Wage Losses Persist
Inflation accelerated in the latest data, with the Consumer Price Index up 0.4% month-over-month. Real wages for many workers have not fully recovered from the 2022 peak.
The Consumer Price Index increased by 0.4% in the past month. Prices rose 3.4% over the last 12 months. This rate remains well above the Federal Reserve’s 2% target. The Personal Consumption Expenditures Price Index shows similar trends. Oil and gas prices contributed significantly to the monthly jump.
A National Bureau of Economic Research study analyzed payroll records for 16 million workers. The data covers the period from 2021 to 2024. Inflation peaked at 9% in 2022. Firms offered standard 3% cost-of-living raises during this time. As a result, 43% of workers who stayed at their jobs suffered real wage cuts. These losses were often severe. Aggregate real wages have recovered, but individual losses remain.
Fiscal policy drives sustainable disinflation
The Federal Reserve raised interest rates by 0.25% recently. The target range is now 3.75% to 4.0%. Chairman Kevin Warsh maintains the 2% inflation goal. However, monetary policy alone cannot eliminate inflation. High interest rates increase the government’s debt service costs. This requires more borrowing. The cycle can fuel further price increases if fiscal deficits remain unchecked.
Historical data from the 1980s offers a precedent. Paul Volcker coordinated with Congress to fight inflation. Deficits tripled in the early 1980s, yet inflation fell. Key legislation included the Tax Equity and Fiscal Responsibility Act of 1982. Social Security reform followed in 1983. Tax reform in 1986 paved the way for late-1990s surpluses. Market confidence in fiscal discipline was crucial to the success.
Congress must address deficit targets
Current deficits run at 6% of GDP. Parker Sheppard of the Fiscal Lab notes a target of 3% is achievable. Congress has hit this level repeatedly in the past. Reducing deficits by half is a political challenge. It is necessary to restore debt sustainability. The Congressional Budget Office should include debt-service costs in legislation scoring. This change would reflect the true fiscal impact of policy decisions.
Voters view inflation as a primary economic concern. The midterm elections are seven weeks away. The administration and Congress must prioritize fiscal responsibility. Blaming the Federal Reserve ignores the role of government spending. Credible deficit targets are required to stabilize prices. The source, GN markets/inflation, highlights the link between fiscal policy and wage recovery. Action by lawmakers is the missing piece of the inflation fight.
