Economic indicators released Wednesday show that U.S. annual inflation hit a more than three-decade high in October. On a personal level, as the rise in prices outpaces income, economist Joel Griffith of The Heritage Foundation says it will mean a decline in the standard of living.
"If your salary is going up by 3% each year, but the cost of your goods and services is increasing by 10% each year, well, that means you're taking an actual 7% pay cut," he explains.
After, say, four years of that type of inflation, even if a person enjoys a 3% annual increase in salary, his or her actual standard of living has declined by 25%.
"One of the other big problems with inflation and with the government distorting prices through their policies, and with the central bank printing copious amounts of money or manipulating interest rates, is it obscures these price signals that a free-market relies upon," Griffith adds. "Price signals being actual price of goods and services, but also interest rates on loans."
"When you have these type of inflationary policies, it means that the signals are distorted," the economist continues. "Companies and investors don't know where to actually employ their resources to best meet the needs of the marketplace."
All things considered, the cost of living will not be the only thing that goes up; Griffith says the total economic output will go down, and the quality of life that could have been obtained with better technology and with higher productivity will not come to fruition.
"For the average person out there, you ignore this at your own risk," he warns. "We do have the opportunity as Americans to participate in our election process, to hold our elected representatives accountable, and to make sure that those who are going to represent us in Washington, D.C. understand that these decisions, when it comes to spending and monetary policy, they have a real impact on our lives as individuals."
According to Associated Press, prices for U.S. consumers jumped 6.2% in October compared with a year earlier, as surging costs for food, gas, and housing left Americans grappling with the highest inflation rate since 1990.