Rethinking Inflation: The Real Cost of Rising Prices
Written on
Chapter 1: Current Inflation Trends
Inflation has dominated discussions for over a year, and its roots can be traced even further back in this publication's history. The latest figures from the government indicate that the Consumer Price Index (CPI) rose by 8.3% in April, following increases of 8.5% in March and 7.9% in February.
As we adapt to these increasing expenses, it’s disheartening that even a CPI reading of 5.0% would be seen as a cause for celebration. Just a few years prior, when inflation hovered around 2.0%, a jump to 5.0% would have sent shockwaves through the economy.
Recent discussions suggest that inflation may have "peaked," but this topic warrants caution for two reasons. First, as evidenced by the claims of “transitory inflation” over the past year, even experts are uncertain about the future trajectory of inflation. Second, even if price increases slow down, will we ever witness a return to lower prices?
I generally lean towards optimism, but I wouldn't anticipate seeing negative inflation, which would indicate that prices are decreasing compared to the previous year.
Section 1.1: The Energy Sector's Struggles
My experience in the energy sector has been enlightening, particularly amid the tumultuous events of the past couple of years. One statistic caught my attention recently: average day-ahead market on-peak power prices across the United States skyrocketed by 161.76% year over year in May.
In simpler terms, power prices during peak hours (Monday to Friday, 8 AM to 11 PM) surged by over 160%. If any other product, aside from energy and food/water, experienced such a drastic price hike in a single year, consumers would likely refrain from purchasing it.
It's important to note that this isn't merely corporate greed; "Spot natural gas prices also saw an average rise of 173.45% year over year." Given that natural gas plants constitute about 40% of the U.S. energy market, any increase in their operational costs necessitates a rise in output prices to remain viable. While 40% may seem minimal, the structure of energy markets means that the clearing price is influenced by these plants.
The first video, "Why The CPI Inflation Rate Is A Joke," delves into the discrepancies within the CPI and the broader implications of these inflation figures.
Section 1.2: Global Energy Crisis
If the previous statistic was striking, the next one was astonishing. "Turkey's inflation rate for May reached a staggering 73.5% year on year." This makes our 8% seem relatively mild. The majority of Turkey's inflation stems from skyrocketing food and energy prices—essential items for survival. Sadly, there’s a widespread belief that Turkey's inflation will hover around 70% for the foreseeable future.
Multiple economic factors contribute to this extreme inflation rate, with energy prices significantly affected by the ongoing Russia-Ukraine conflict. While this conflict primarily impacts the citizens of Ukraine and Russia, its ripple effects are felt globally. Energy prices have surged across all nations. Is it possible that we are witnessing a phenomenon of worldwide inflation?
Chapter 2: The Road Ahead
Inflation is likely to remain a persistent issue. We should be cautious of those who celebrate a decrease in CPI from 8%. As long as the CPI remains a positive figure, we will still be paying more than we did the previous year.
Although I recognize the arguments against deflation, essentials like energy and food are critical. Even if their prices were to decrease, consumers in the U.S. and worldwide would welcome such changes.
The ongoing conflict in Ukraine shows no signs of resolution; it has now been more than 100 days of fighting. For many in my generation, we have not experienced a war with such significant economic implications. This reality is sobering and raises concerns about the state of the economy one year from now.
The second video, "What's REALLY Causing Prices to Rise?" provides deeper insights into the factors driving inflation and the economic landscape.