Kudlow: The harder you work, the less you're taking home

Inflation came in much stronger than expected today, rising .6% in January and 7.5% over the last 12 months. 

By the way, over the past three months, the CPI has now hit 8% at an annual rate, suggesting price increases are getting worse, not better. 

Grocery prices up 9.4% the last three months at an annual rate, 7.4% for the year. 

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Electricity prices up 21% over the past three months. Overall energy up 18.3% for the past three months. 

Clothing up 12.3%. Gasoline up 21.7%. 

If you're a hardworking, middle-class, blue-collar family, the inflation tax is hitting you hard. 

For production and non-supervisory workers, wages have increased 6.9% over the past year, but prices are up 7.5%. 

So, the harder you work, the less you're taking home. This is a very serious problem and there is no end in sight. We've saved America by killing the bill, but the new mission is to save America and kill inflation. Right now, there is no action on the horizon that will kill inflation. 

The culprit at this point is the Federal Reserve. We are in the midst of a price-wage spiral. Meaning, prices are going up so fast that the workforce must demand higher wages. It's not the workers' fault. It's the government's fault. Far too much federal spending which is still in the system, enabled and accommodated by vastly too much Federal Reserve money creation. 

As this chart shows, the Fed's balance sheet, that is the raw material for money supply growth, has increased by $5 trillion in the last 2 years, unprecedented. In short, the central bank has been purchasing all those bonds from Uncle Sam's massive deficit spending. 

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So, as the next chart shows, using a 3-year smoothing average annual rate for the M2 money supply, it has moved from 5% growth to 14% growth in a couple years. We have not seen anything like this since the 1970s. 

Additionally, with all this excess money creation by the central bank, an index of commodity prices has increased by 70% as shown by the next chart. We've never seen anything like this. 

Alright, government spending, Fed bond purchased, money supply gains, commodity price explosion. It's not just a few prices, it's virtually all prices that are going up. That is a monetary phenomenon.  

That's what's taxing the middle class and the lower incomes. Save America, kill inflation. 

The president continues his misguided confidence in his Treasury secretary who keeps telling them inflation will drop by 2% by year-end. No, it won't.  

Monetary policy changes work with long and variable lags. It takes two or three years to remove the punch bowl. Today's inflation was baked into the cake in 2020 and 2021 and it continues here in early 2022. 

The Fed continues to buy bonds. They are fueling more money growth and more inflation. 

By the way, the commodity price explosion indicates how much your money's value has declined. Commodities are a good benchmark for dollar value. Exploding up, your dollars are going down.  

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A senior administration official today pointed to the Fed's independence. It's a good thought. The presumption is leave the Fed alone and they will take care of business, but why is the White House appointing far-left woke radicals like Sarah Bloom Raskin and Lisa Cook? They're worried about climate change and left-wing social policies, not inflation. That's a big problem. 

Forty years ago, Ronald Reagan worked with Paul Volcker to vanquish inflation. Unfortunately, I don't see a Reagan and I don't see a Volcker, do you?  

Save America, kill inflation. 

This article is adapted from Larry Kudlow's opening commentary on the February 10, 2022, edition of "Kudlow."