War's Effect on U.S. Inflation

A key inflation measure jumped in March as gas prices soared. It’s the latest sign the Iran war is pushing up the cost of living, as well as delaying possible interest rate cuts.

Inflation rose 0.7% in March from February, and compared to a year ago, rose 3.5%, the biggest increase in almost three years. While that rate is high for the last 25 years, it’s basically in line with average inflation for the latter half of the 1900’s, and trivial compared to the early ‘70s through early ‘80s, when prices all but doubled in ten years.

Gas, of course is the leading driver. Core inflation (food and energy excluded) rose 0.3% in March.

On the other hand. Americans’ incomes (wages, business income, and government benefits) did quite well, increasing 0.6% - about an 8% yearly rate. Despite that, it still wasn’t enough to overcome the cost of Trump’s insane war on Iran.

Additional energy costs will likely filter down to other products and services, potentially slowing the economy. Last year’s tax cut legislation has boosted recent tax refunds, but much of that could get pilfered by trickle-down prices starting at the pump.

Joe Brusuelas, chief economist at RSM, a tax and advisory firm, expects the economy to expand just 1.7% this year, down from an earlier estimate of 2.4%.

The average price of a gallon of gas keeps fluctuating, but the general trend is higher. Prices have topped $105 per barrel more than once; much higher than the $67 per barrel prior to the war. The price per gallon, which was just under $3 nationwide, now tops $4.25 as of this writing. Yet, despite that, consumer spending soared 0.9% last month, which indicates Americans lifted their spending a bit more than inflation, a sign of consumer resilience.

When it comes to the Fed, they typically pay more attention to core prices. Depending on how long this senseless war continues, one shouldn’t be surprised if higher energy costs feed through to core inflation in the coming months. Remember when Trump said everything would become cheaper under his administration? Are you feeling cheated yet?

The military industrial complex has brainwashed us into thinking Iran is a viable threat – “we must keep them from getting nukes!” In just two months, we have spent over $25 billion dollars on a false narrative. I think the public is fooling itself for believing they don’t already have nukes. Dictators and sects of religious fanatics aren’t just crazy, they’re crazy smart. The biggest threat of nukes… is fear. Sadly, our military uses that fear to con us into endless wars, deaths, and spending. The real threat is a digital war – and Iran isn’t some backward, camel-jockey society of stereotypes.

Ask yourself this, if the war was really necessary, why are Israel and the United States the only two conducting it? Simple: countries who don’t intervene in the internal affairs of sovereign nations generally don’t become targets of threats and fear. How long our consumer resilience lasts is up to Trump ending the charade, more so than everyday consumers.

Source used: Associated Press