US returns to stagflation

http://atimes.com/2016/03/us-returns-to-stagflation/

US returns to stagflation
By David P. Goldman on March 23, 2016

“The economic surprise of 2016 may be inflation picking up more than most economists expect,” wrote Justin Lau. in the March 21 Wall Street Journal, adding, “The Labor Department last week reported that its core inflation measure, which excludes food and energy prices, was 2.3% higher than a year earlier in February.” The trouble is that Americans aren’t earning and spending more. Two big items in the household budget just cost a lot more. Housing and healthcare account for all of the inflation bounce. Rising prices are making Americans poorer. Stagnation with inflation, or stagflation, was the economic disease of the 1970s, and the US is having a recurrence.



In fact, so-called core inflation is rising faster than US hourly earnings, which means that Americans have less spending power except at the fuel pump.

Two big factors are eating away at American spending power. The first is the ruin of households’ credit standing during the mortgage foreclosure wave after 2008, which forces Americans into costlier rental housing. The second is government-mandated health care spending under the Affordable Care Act, which increased demand for medical services without increasing supply. Shelter and medical care together comprise 40% of the US Consumer Price Index, and they rising at close to 4% a year.



With long-term mortgage rates at only 3.3%, it’s cheaper for Americans to own than to rent, especially because mortgage interest is tax deductible. Since the Great Recession of 2008, though, the US rate of home ownership has plunged, because half of American households can’t raise the downpayment or qualify for a mortgage, according to the Federal Reserve. More households are forced into the rental market, and rental costs have risen while the homeownership rate has fallen.