Where May's 8.6 Percent Inflation Rate Came From

Like many of us, you were shocked by the 8.6% inflation increase since last year.

In one of my prior columns, I pointed out that 2021's inflation was caused primarily by heavy increases in the M2 (spendable money) supply.

Luckily, the Federal Reserve toned this down.

It only rose by 2% over the first quarter of this year.

That was the good news.

The bad news was that grocery bills rose by 11.9% in May.

Since these constitute about 27% of a typical family budget, the resultant family inflation burden for food came to 0.27 x 11.9 = 2.9 % of a family’s budget.

However, even worse, from last year, gasoline prices rose 50%.

This comprises about 11% of a family’s budget.

Thus, the cost of gas takes an additional 11 x 0.50 = 5.5% out of each family’s pocket.

Both of these inflation numbers add up to an 8.4% increase for last year, not counting other expenditures, such as for rent for example, bringing the total to the reported 8.6%.

The above analyses show that current (and non stoppable) inflation increases are caused by external influences namely, the war in Ukraine.

The lack of wheat governs our food prices and the lack of sufficient imported oil determines the still growing oil prices and therefore the cost of gasoline. While it's difficult to find a substitute for wheat, we could make peace with Venezuela and Iran and import their oil.

Food for thought.

Perhaps this writer is not smart enough, but I can’t understand how the Federal Reserve can fight inflation by raising the borrowing cost for people (credit card fees, for example), and by increasing mortgage interest rates, keeping fewer people from buying homes?

Isn’t any 1% increase in interest payments to a bank also a 1% increase in inflation?

Psst. Want to know a secret?

The real reason for the rate increases is to keep the interests on U.S. government bonds attractive enough so that, primarily foreigners want to buy them and keep our government afloat.

Dr. Hans Baumann, a former Corporate Vice President and founder of his company, is a well known inventor, economist, and author having published books on scientific, economic, and historical subjects. Read Dr. Hans Baumann's Reports — More Here.