Inflation costs to consumers are real, with an explanation

Iowa’s prodigious congressional tweeter, Republican U.S. Sen. Chuck Grassley, attempted to put inflation into terms Iowans and others could understand: via their pocketbooks.

"Welcome 2 Pres Biden’s America where inflation is costing households an extra $175 a month," he wrote on Twitter the evening of Tuesday, Oct. 19. 

The twitterverse was quick to respond: 

"Take a rudimentary economics class," wrote one commenter who posted a graphic showing employment going up since Biden became president. (It is.)

"Actually old man ...i think maybe we're paying your bills," another wrote. (Taxpayers pay salary and benefits.)

"This is a lie," yet another wrote. Not quite, although Grassley’s source for the $175 per month says it applies to a salary of $70,000. It doesn’t apply for all households.

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

That extra 3 percentage points out of $70,000 equals $2,100 annually.

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

Grassley pulled Zandi’s assessment from an Oct. 6 New York Post story, Grassley’s press office said. The Post story notes that inflation is at 30-year high, with no way to predict when it will go down because of uncertain supply-chain issues.

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

Grassley specifically was referencing Zandi’s analysis in his tweet, Grassley press secretary Katelyn Schultz wrote in an email to PolitiFact Iowa. 

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Knowing how Zandi calculated the additional cost burden is important because inflation’s impact on household spending power varies, depending upon salaries. While average hourly earnings increased 0.2% from August to September, the U.S. Bureau of Labor Statistics reported Oct. 13 that real -- that is, inflation-adjusted -- average hourly earnings were down 0.8% from what they were in September 2020. "My calculated loss of spending power is consistent with the decline in real wages," Zandi wrote to PolitiFact Iowa.

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

When you add the unexpected 3 percentage points to the expected inflation of a little more than 2%, a consumer earning the median $70,000 in January would need $73,406.04 at the end of September for the same purchasing power. That amounts to $283.83 a month if the September 5.4% rate holds.

Knowing the calculation also is important because of the political arguments that Republicans are making to pin the blame on President Joe Biden. PolitiFact has reported on this before. Economists said for a story at the end of July that recent large amounts of new government spending, which Republicans point to when pinning blame on Biden for inflation, started during the Trump Administration’s efforts to counteract COVID-19’s financial impact on the nation’s economy.

Two-thirds of $3.4 trillion of the $4.7 trillion budgeted for COVID-19 relief had taken place during the Trump Administration, the PolitiFact analysis showed.

We also reported at the beginning of July that Federal Reserve Board Chairman Jerome H. Powell wanted analysts to have more information before knowing where inflation ultimately is headed. Two months had passed when Powell said in an Aug. 27 speech that inflation still was a cause for concern but likely to be temporary.

On Sept. 28, Powell told the House Banking, Housing, and Urban Affairs committee and, on Sept. 30, the House Financial Services Committee he still expects inflation to level out but that this may not happen until 2022. "As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2%," he said.

Other factors come into play when assessing buying power. For example, more people have jobs now than in January. Gains have been made in leisure and hospitality, professional and business services, retail trade, transportation and warehousing, the Bureau of Labor Statistics reported in October. 

Unemployment dropped from 5.2% in August to 4.8% in September, the report said. But that still is higher than its pre-pandemic level in February 2020 of 3.5%, the report also said.

Inflation in President Biden’s America is costing households an extra $175 a month, Sen. Chuck Grassley tweeted to his followers Oct. 19.

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

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

It’s also worth noting that wages have gone up modestly, helping households cope with some, but hardly all, of the increase in prices.

The statement is accurate but needs additional information, so we rate it Mostly True.