Nearly Guaranteed Top 12 Predictions For 2023

No one is shedding a tear over the end of 2022.  Sharp inflation. Record food price hikes. Highest ever gasoline prices. Worrisome product shortages. Rising interest rates. Steep stock market losses. A porous border. Runaway federal government spending.  War in the Ukraine.  Good riddance to 2022. 

No even Nostradamus could have predicted the gloom of 2022.

When the calendar flipped to 2023, forecasters with short memories are peddling cheery news about everything from the stock market to inflation.  Optimists claim the new year will make Americans forget 2022.  Not so fast.  My occasionally reliable, highly unpredictable crystal ball is blinking red.

1. The country sinks into a recession, as predicted by a majority of economists and large banks.  The Gross Domestic Product (GDP) will be negative for at least two straight quarters this year.  The Biden Administration will avoid using the "r" word, referring to the crisis as a "temporary retraction." 

2. The economy will shed 1.1 million jobs as more major companies in the technology sector and big firms are forced to layoff employees in the face of less consumer spending.  First time unemployment claims increase each month.  Expect the unemployment rate to climb to 4.5% by year's end.

3.  Adding to the economic woes consumer credit card debt and personal loan delinquencies surge in the new year.  Consumers have been on a spending binge the last two years seemingly immune to inflationary prices.  A consumer retrenchment will negatively impact corporate earnings. 

4.  After the worse market since 2008, equities managers are clinging to history that shows markets tend not to experience two negative years in a row.  Equities bounce around early on before gaining momentum. Stocks finish the year strong with the S&P (+20%) outperforming the NASDQ and Dow. 

5. Home sales will reach their lowest point since the 1980's as interest rates make real estate less affordable, especially for first-time buyers. The good news is that the overheated increases in prices will abate except in a few markets where demand for high-end homes flourishes such as Texas and Florida.

6. The Federal Reserve, as promised by Jerome Powell, will continue to raises rates in the new year as inflation persistently refuses to fall lower than 5.8%. Food and energy prices leap higher than the CPI. Eventually, Fed hikes dampen growth, prompting Powell to forego a rate hike in fourth quarter.

7.  COVID infection rates soar past 70% in China after the Communist nation abandons its COVID Zero policy. New highly infectious variants develop as the virus rages, killing 1 million Chinese.  Chinese travelers spread the virus globally, leading to worldwide outbreaks.  

8. The Supreme Courts ends its temporarily halt of Title 42, which allows the expulsion of illegal immigrants under pandemic-era restrictions. The move unleashes a torrent of border crossings, prompting the forced resignation of Alejandro Mayorkas.

9. More fast food restaurants will join the robot revolution as testing by Chipotle, White Castle and others proves diners are satisfied with food prepared by robots.  The fast food industry will move quicker to adopt robots and AI as wage increases and the difficulty hiring workers persist.   

10.  The collapse of FTX Exchange, once a $32 billion enterprise, prods the Securities and Exchange Commission (SEC) to issue regulations for the cryptocurrency industry.  As more crypto exchanges and lenders file for bankruptcy, the new rules clamp down on the industry, softening currency demand.    

11.  The Chinese will not launch an invasion of Taiwan instead increasing menacing militaristic tactics to cower the island.  When the U.S. fails to intervene, China finds an excuse to encircle the island with a naval armada.  China threatens a blockade unless Taiwan makes concessions.  

12. Trying to speculate on Putin's strategy in Ukraine is a fool's pursuit.  But the most likely scenario is the European Union will push for a settlement as energy supplies dwindle, sapping economic growth. Ukraine is pressured into a diplomatic solution when EU/US commit billions to rebuild the country.   

Print this column and wave in your prognosticator's face at the end of 2023.  However, if you have your own predictions you would like to share, I would like to read them.  After all, the prediction business is full of people who get it wrong every year.  And that has never stopped anyone, including me.  

Biden's Twilight Zone Presidency

There have been an avalanche of surreal events involving President Biden but none more bizarre than a White House celebration on inflation reduction on the very day his government announced an 8.3% hike in the cost of living.  It eerily resembled a Twilight Zone television episode.  

While touting the Inflation Reduction Act, Biden boasted that gasoline prices are down an average of $1.30 since the beginning of summer. However, the cost per gallon is still 25.6% higher than a year ago. Russia's Putin was blamed for the price hike, so, facetiously, does he get credit for the decline?

Gas prices are dropping because demand for fuel has faltered 4.4% this year.  Another contributing factor  is some states have suspended gasoline taxes which lowers the average cost of a gallon.  Industry experts expect prices to escalate again when the release of Strategic Petroleum Reserves ends this fall.

During his back-slapping speech, the president said; "We're getting other prices down."  Exactly which ones is he talking about?   A Department of Labor report released the same day recorded the largest food price increases since May, 1979--an 11.4% jump over the past year. 

Here's some examples of soaring food prices: Eggs, 39.8%; flour, 23.3%; milk; 17%; bread 16.2%; chicken, 16.6%; meats, 6.7%; pork, 6.8%, fruits and vegetables, 9.4%.  A industry report shows lower-income households in particular are skipping nutritional food items because of the inflated price. 

Utilities are rising, especially natural gas, which climbed 33% since last year. With winter coming, prices will spike. New vehicle prices are 10.1% higher than 2021 and rent continues to skyrocket: the nationwide average for a one-bedroom apartment has mushroomed 27.1%.

Asked if he was concerned about 8.3% inflation, the president responded: "No, I'm not because we're talking about one-tenth of 1%," an apparent reference to a dip in some prices. Be assured average Americans are not fist bumping in joy at the check-out counter at their local grocery store.

But, of course, he is not the only person in the administration that does not allow facts to stand in the way of dubious pronouncements. In an interview, Vice President Kamala Harris twice claimed the porous southern border is "secure." The sycophant reporter did not challenge her obvious falsehood.

She said the following in a television interview: "We have a secure border in that that (sic) is a priority of any nation, including ours and our administration."  You can't make this stuff up.  

The vice president's claim is particularly egregious considering she is the administration's official Border Czar.  She hasn't  personally visited the border, so she might be excused for knowing so little about the current crisis. Although you might surmise, she could find out if she wanted. 

Southwest border apprehensions in fiscal year 2022, which ends in September, have already hit 1.9 million arrests.  This is the highest number ever recorded since the U.S. Customs and Border Patrol began tracking apprehensions in 1925.  That doesn't fit the definition of security at the border.  

But Harris' statement pales in comparison to the whopper told by Biden's Press Secretary Karine Jean-Pierre.  Questioned about border security, she replied: "It's not like people are just walking across the border."  What alternative universe is she living in? 

There is a large cache of videos showing immigrants not only walking across the border, but climbing fences, swimming and being ferried across the Rio Grande River in boats operated by Mexican drug cartel members. Swarms of illegals are coming because they know the border is open.   

Cue the Twilight Zone music.

Treasury Secretary Janet Yellen can always be counted to deliver a Rod Serling gem. (Serling was the creator of Twilight Zone.) She assured Americans for months inflation was temporary, even as the data showed the pressure on prices was continuing to mount. 

Then after two quarters of negative GDP growth, Yellen delivered a non sequitur by calling the economic decline a "transition" not a recession, ignoring the long-established definition.  Two quarters of negative growth denotes a recession.  

Now Yellen is backtracking again by admitting the country faces "a risk" of recession as it battles inflation.  Even if the third quarter delivers negative growth data, it would not surprise if Yellen updated the term to "extended transition." This administration knows no shame.

There are two conclusions that can be drawn from this Twilight Zone administration: Either President Biden and his team believe Americans are stupid or they are convinced their lies will be accepted as fact by a compliant media prone to echo the administration's narrative.

Whatever the conclusion, Americans are not entertained nor fooled by Washington's Twilight Zone episodes. 

How Your Tax Dollars Helped Fuel Inflation

Ask Americans what's fueling inflation and the answers are predictable.  Gas prices. Food costs. Higher wages. Supply chain snarls.  Even Putin.  No one blames Washington's big spenders. They should. In a two year period, Congress shelled out a record $9.95 trillion dollars, contributing to inflation. 

The classic definition of inflation is too many dollars chasing too few goods.  Some modern economists prefer to define inflation as a general increase in prices and a fall in the purchasing value of money. That describes what transpired when the economy opened up in late 2020 after Covid lockdowns. 

Once the shackles of pandemic restrictions were lifted, Congress pumped a record $3.13 trillion in economic relief in 2020.  Then Washington's privileged class doubled spending to $6.82 trillion under Biden. The economy was flooded with money at a time when supplies of nearly everything was scarce. 

Economic experts, including Ben Bernanke and Larry Summers, sounded the alarm in early 2021 about the spending gusher.  No one listened.  The priority of every Washington sewer dweller is to get re-elected by showering their district or state with pet projects or sending checks directly to voters.

Mr. Biden's $1.9 trillion American Rescue Plan in 2021 triggered  an avalanche of dollars cascading into the economy. Checks for $1,400 rolled out to Americans.  Unemployment insurance increased. Child tax cash payments replaced credits. Cities and states were the beneficiaries of billions of dollars. 

Both parties share the shame.  That's why they are looking for scapegoats like Putin. Congress is responsible for approving the annual budget and directing spending. In recent years, Washington has employed budget smokescreens to hoodwink the public while it continues the spending rampage. 

Congress last passed an annual appropriations budget bill in 1996. Since then, Congress has junked the time-honored appropriation process and resorted to a series of massive appropriation bills.  In addition, Washington's aristocracy uses so-called continuing resolutions to fund the government.

This budget chicanery is a deliberate charade to hide the gargantuan amount of taxpayer dollars spent in a single year.  This process led to a $2.2 trillion Cares Act in March 2020. It provided cover for a $1.2 trillion infrastructure bill.  And the the mother of all spending, a $2.3 trillion appropriations bill in 2021.

Granted COVID lockdowns created a unique economy quandary: How to jumpstart the feeble economy?  A Tsunami of billions of dollars were dispatched to airlines, small businesses and stimulus payments to Americans.  All that spending, however,  led to a bloated supply of dollars in the economy. 

But Washington's nobility just kept doubling down on spending. The Government Accountability Office (GAO) estimates that more than "$1 trillion in pandemic relief and aid approved over the last year remains unspent."  Washington's bureaucracy cannot spend as fast as Congress appropriates money. 

While your tax dollars are idling, they get wasted by your federal government. The GAO, a government watchdog agency, presented its annual report in May identifying $552 billion in government waste and redundancy. Those dollars will never be refunded to the taxpayers who forked over the money.

That is just the tip of a Titanic iceberg. Non-partisan groups estimate that overall fraud in the COVID Paycheck Protection Act (PPA) and the Economic Injury Disaster Loan Program reached $84 billion.  The money was stolen by criminals.  It was inevitable given lax reporting requirements.

Congress did that.  In its rush to prime the pump, it sent billions to the Small Business Administration which spent it as if money was candy at Halloween.  The Department of Justice has promised to find and prosecute criminals.  But taxpayers get nothing. Now the administration stumps for higher taxes.

Oh, and at a time when the White House was requesting more COVID relief funds this January, an enterprising report by a budget think-tank uncovered that the $1.9 trillion relief package had $800 billion remaining in unspent funds.  The appropriation had been approved in 2021.   

As your blood pressure spikes, the latest Federal Fumbles compiled by Oklahoma Senator James Lankford contains some doozies. Two billion dollars were frittered away by not finishing the border wall. Contractors were paid the money by the government not to build the wall.  Say what?

The U.S. Grant Presidential library in New Jersey received $500,000 for an art wall.  This is the penultimate of pet project payoffs to New Jersey's senators and Congressional representatives. Another $500,000 was dished out to the Nansen Ski Club in New Hampshire. Nice, huh?

But there's more.  A total of $2.65 million was conveyed to China for their health programs. The fisherman's co-op in Guam snagged a nifty $3 million. The government handed out safe smoking kits at the cost of $30 million. And, golly, $569,000 was doled out for lobster pot removal.

The gigantic levels of government spending over nearly three years injected trillions into the economy. Direct payments to Americans left them with money to spend after they returned to their jobs. To the untrained eye, it appeared to be just the tonic to boost the economy.

However, the mammoth government spending of your tax dollars created the perfect economic storm.  Supplies of goods were tight. Service firms were just getting back on their feet.  Trillions of dollars were sloshing around the economy. Too many dollars were chasing too few goods.

The Federal Reserve made matters worse by artificially holding down the funds rate to near or just above zero.  That encouraged more borrowing, more stock market speculation, more consumer debt. The Fed dawdled  too long, before finally inching up interest rates in the midst of record inflation.

The Fed's so-called accommodation recklessly added to the nation's supply of money at a time when Congress was on a spending frolic.  It was a double-whammy that poured gasoline on the fires of inflation. Yet the "smart" Washington noblesse told us inflation was only "temporary."

Congress and the Fed agreed the engorged spending would help the people who needed it most. But the people suffering the most today are those at the lowest rungs of the economic ladder.  They are making gut wrenching decisions about putting food on their tables and gas in their cars.  

That's why it is so disingenuous to hear Mr. Biden haranguing oil companies about inflationary prices. Biden, the Fed and Congress need to look in the mirror.  Start pointing the finger where the blame belongs.  Washington did this.  They own this crisis. Don't let them dodge accountability. 

Wage-Price Spiral Threatens American Economy

Menacing economic storm clouds looming on the horizon threaten America's growth.  Wages are rising at the highest peak in decades. Prices for goods and services are spiking.  As a result, inflation is marching upward, triggering a risk of a wage-price spiral that will cripple the economy.

During the double-digit inflation of the 1970's, wages and prices chased each other.  Spiraling inflation eroded the standard of living for workers.  Employees demanded higher wages to offset inflation's erosion of their purchasing power.  Businesses, in turn, jacked up prices to cover the increased wages.   

This never ending cycle of wage-price pressure fueled a 12% inflation rate in 1974. Once started, wage-price spirals are like trying to brake a speeding locomotive.  The inflation rate zoomed to 14.5% in 1980. Companies' profits slumped and consumer spending plunged, stalling economic growth.

After years of dithering, the Federal Reserve finally acted in 1979 when Paul Vocker took the reins.  He ended the days of easy money by rapidly hiking interest rates.  The prime lending rate kept climbing until it hit 21%.  Volcker's tough medicine stabilized prices, but triggered two recessions.

There are eerie similarities between that inflationary crisis and today's economic environment.  Most economists and stock market promoters shun any comparison because they fear the stock market will crater.  They have a boatload of reasons why this period of swollen inflation will be different.

As the inflationary storms brewed last year, economists, stock analysts and the Federal Reserve Bank dismissed surging prices as a transitory hiccup. They predicted the supply side would soon catch up with the post-pandemic spending spree, restoring price equilibrium.  They were appallingly wrong.

Despite warnings from a few bank CEO's, the Fed stubbornly dug in its heels on increasing interest rates to temper inflation.  When the Fed finally changed direction, it was too late.  Fed Chairman Jerome Powell has signaled three interest rate hikes this year. The threat of a fourth is a real possibility.

The Fed's inaction is hard to fathom.  The data has been streaming in from the Bureau of Labor Statistics (BLS), the Department of Commerce and the Federal Reserve's 12 district banks. (Note: Data used in this blog comes from those three sources.) The indicators were clear but Powell demurred.  

Since last year, the economy has been on a treadmill of higher wages and higher prices.  Private sector wages increased 4.1% in November the largest jump since September of 2001 when wages spiked 5%. Both figures are 12-month rolling averages. Fourth quarter gains were 4% as wages keep rising.    

In 1974, wages skyrocketed 6%, contributing to a double-digit inflationary rate. The U.S. may soon hit that number because every day brings news of more companies hiking wages to attract workers and then hiking prices. Inflation in November hit 7% and forecasts are for higher rates ahead. 

The top line inflation number doesn't tell the whole story.  Food prices were up 5% in November.  Energy costs escalated 29.3% on a 12-month rolling average.  In the 1970's, runaway oil prices were one of the key drivers of inflation.  Few will concede the connection today.  

The Fed's key inflation gauge, Personal Consumption Expenditures Price Index or PCE Price Index, soared by 5.8% for the year.  That topped the previous period's increase of 5.7%, becoming the fastest inflation since 1982.  This is exactly what happened in the 1970's. Denial doesn't change facts.

Workers are hard to find, adding to wage pressure.  Thousands either left their jobs or were furloughed or terminated in the pandemic.  A large number have decided to remain on the sidelines. Others rejoined their firms, then left for higher paying jobs.  The share of workers leaving their jobs has risen to 3%.

The labor participation rate--an estimate of the economy's workforce--stands at 61.9%, which is 1.5 percentage points lower than the level in February, 2020. It means there are less people working or actively looking for a job. There are currently nearly 11 million job openings in the U.S.

An estimated 10 million workers are missing, compared to the pre-pandemic numbers. President Biden points to the 3.9% unemployment rate as proof the job market is robust.  However, that figure does not include millions of discouraged workers and those marginally attached to the workforce.

The wage-price spiral deniers point to the fourth-quarter 6.9% growth in the country's Gross Domestic Product, the broadest measure of the nation's production of goods and services, as proof of a healthy economy. However, most of the growth owed to businesses restocking depleted inventory.

That means the GDP uptick was not the result of increased consumer spending. Excluding the inventory effects, the nation's output grew at a puny 1.9% in the fourth quarter. That is a worrying sign for economic growth this year.  It portends only modest gains in growth for this year. 

All the data paints an ominous economic landscape. Inflation continues unabated.  Wages are billowing to catch up in a job market that has more openings than qualified workers.  Inflation and wages moving in tandem will feed the vicious inflationary cycle that will force the Fed to keep boosting interest rates.

Because the Fed sat on its hands for too long, the danger is an overcorrection.  As the Fed tinkers with rates, the cost of borrowing, credit card debt, car financing, home mortgages and home equity loans  spike.  In the face of the onslaught, consumer spending will retreat, making a recession more likely.

The Fed is standing on a precarious precipice. With the mid-terms lurking, it may be difficult for the Fed to remain independent and do what's best for the long term, instead of caving to political pressure. If the Fed crawfishes on its announced rate hike schedule, inflation will get worse.        

What's Up With Inflation? Everything!

Inflation is roaring in America's economy. This isn't news to consumers but the latest government data confirms prices for goods and services are spiraling at historic levels.  Costs for food, cars, fuel, construction materials, air travel, household furnishing, apparel and virtually everything else is soaring. 

The question on the minds of consumers, economists, bankers, investors and stock market analysts remains: Is this a transitional period of spiking prices that will end soon or will inflation continue for a year or more?   Answers depend on whom you ask and their stake in the outcome of the debate.

                                           The Data

Data not opinions are the appropriate starting point for a discussion about inflation.  The Consumer Price Index (CPI) surged one percent, in June.  But that monthly jump doesn't tell the whole story.  During the last 12 months, the index hiked 5.4%, the largest annual expansion since August 2008.  

Unpacking Bureau of Labor Statistics (BLS) reveals eyeopening numbers.  The price for all energy has leaped 24.5% in the last 12 months. Gasoline prices are up 45.1%; used cars and trucks skyrocketed 45.2%; transportation services rose 10.4%; and, commodities forged ahead 8.7% in the same period.

In 44 of the nation's 50 largest metro areas, rents have surpassed levels before the pandemic began, according to data from Realtor.com.  Nationwide, the median rent reached a record high of $1,575 in June, an increase of 8% from a year ago. Housing is not a discretionary cost for Americans.  

Food, which is not included in the CPI, increased 0.8% in June, a larger upsurge than May's 0.4%. Food prices are heavily impacted by the cost of fuel, because farmers, wholesalers and grocery chains use gasoline for harvesting and for fleets of trucks to ship food to local stores.  

Consumer wages have not kept pace with the inflation.  The Bureau of Labor Statistics measures the growth of weekly earnings, adjusted for inflation.  From May 2020 to May 2021, real earnings decreased 2.2%. This creates a perfect storm of rising prices and falling purchasing power. 

The flow of money into the economy acutely effects inflation. The Federal Reserve has shoved down interest rates while maintaining bond purchases. This usually triggers robust economic activity and business investment, but inflation lurks as a danger.

In 2007 during the financial crisis, the Fed cleaved the federal funds rate from 5.25% to zero. Later, the Fed raised rates slightly, then sliced the target in 2020 to near zero due to the pandemic. This creates a phenomenon known as "easy money," lowering lending rates for consumers and businesses.

However, lax money policy dampens interest rates paid on money markets, savings and bonds. As a result, investors chase returns in the riskier stock market, fueling bumper growth in the major market indices.  Caution: the stock market is not always a reliable indicator of underlying inflation.   

Today's economy is also awash in Biden bucks as the administration, backed by Congress, has pumped trillions into the economy, including direct payments to individuals.  Economist Larry Summers calls the current stimulus "excessive" because it risks overheating the economy, accelerating inflation.  

Another contributor to the inflationary pressure is the rising cost of hiring employees.  As businesses resume normal operations, it is becoming harder to find workers.  Some remain on the sidelines, content to collect beefed-up government unemployment checks and stimulus payments.  

To complicate matters, many employers are not recalling laid off workers as normal operations resume. Lost jobs and idle workers help explain why the national unemployment rate in June swung to 5.9% In pre-pandemic January 2020, unemployment stood at 3.6%.

At the end of May, there were 9.2 million job openings, according to the BLS.  Desperate businesses are being forced to pay hiring bonuses and other perks to fill jobs.  The cost of wages and bonuses are passed on to consumers in the form of higher prices for services and goods.  

                                Inflation: Transitory or Long Term?

In day-one testimony before Congress, Fed Chairman Jerome Powell repeatedly said his colleagues are focused on returning to full employment and less concerned about temporary hike in inflation.  In fact, the Fed made it clear that it would tolerate higher inflation than its target rate: a 2% annual increase.

It is obvious the chairman believes the current inflation will diminish soon. He blames supply chain issues, increased post-pandemic spending and higher oil prices for the uptick.  "As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal," Powell says.

But is he right?

JPMorgan Chase chief executive Jamie Dimon is solidly in the camp of dissenters.  He recently opined that there is "a very good chance inflation will be more than transitory."  His investment bank, the largest by assets, is stockpiling cash to buy treasures and other investments when interest rates climb. 

He's not alone.  Deutsche Bank economists and Morgan Stanley are sounding the alarm about long-term inflation. But there are still doubters who frankly are championing easy money for their own economic interests, especially those who market stocks and other financial instruments,

"While inflation has a negative connotation for many people, inflation itself isn't inherently good or bad," says Jill Fopiano, president and CEO of O'Brien Wealth Partners.  "Some level of inflation is a sign that the economy is healthy."  

Gus Faucher, chief economist at PNC Financial Services Group, points out recent sharp rises in prices are concentrated in parts of the economy that were whipsawed by the pandemic, including used cars, airfares and hotel stays.

"That suggests that this is part of the dislocation from the (economic) reopening and I would expect that...inflation will settle down later this year," Faucher forecasts.

Economists can find reasons to validate their views on alternative scenarios.  However, this writer doesn't consider wishy-washy perspectives to be a helpful guide to the future.  Uncertainty promotes more uncertainty.  Taking a stand always comes with risks of being wrong.  So be it.  

                                        An Inflation Prediction 

In day-two of his testimony, Powell modified his stance on "transitionary" inflation.  He told the Senate Banking Committee, "I think we're experiencing a big uptick in inflation.  Bigger than many expected.  Bigger than certainly I expected."  Analysts labeled the remarks a "softening" of his stance.

It is more like backpedaling or waffling.  Powell figures by hedging he protects his credibility regardless of the eventual outcome.  But a career economist and bank executive Howard Manning, who spent five years at the Federal Reserve Bank in Kansas City, isn't buying "transitory inflation."

"With the exception of the 1% money earners and the top 5% wealth holders, the rest of the U.S. economy is suffering from a runaway inflation spike that is dramatically effecting net disposable income," Manning notes.  Growing inflation is a drag on savings and investment, he adds.

To underscore his premise, Manning cites a rapid increase in commodity prices that have driven up food and clothing prices, which appear to be "running closer to 7% to 10% rather than the 2% to 5.5% the administration wants us to believe."

He acknowledges supply chain issues, but underscores the continuing outsourcing of production and manufacturing which effects capital formation.  American jobs are fleeing to China, India and other countries continuing to "rob the USA of middle class level wages," Manning reminds economists.

Manning's assessment of jobs: The COVID job losses are "permanent." "And the Green Energy jobs are not financially replacing former jobs. The future now is working for the military industrial complex--wages, healthcare (soft dollar) and government subsidy," he posits.  

In this writer's opinion, based on metrics, inflation will stick to the economy like Elmer's Super Glue for at least a year or more. Rising prices sometimes can be offset by efficiencies and productivity. However, the fastest way to mitigate exploding costs is by shaving payroll and jacking up prices.

Gasoline and fuel prices which effect food,  transportation and energy costs are blooming with no end in sight for at least the next 12 to 24 months.  Virtually every American, especially low income earners, will be forced to make purchase tradeoffs as inflation bubbles, threatening economic growth.

The Fed, economists, the administration and stock market pros will not be able to use the excuse they were blindsided by stubborn inflation.  The data is right in front of them.  They are choosing to adopt a rosy view.  The data indicates inflation will march steadily ahead without proactive Fed intervention. 

CPI Hoax: How the Feds Mask Inflation

Like many government statistics, the Consumer Price Index, has been manipulated by the bureaucrats to render it inaccurate at best and misleading at worst.  Once CPI was a proxy measurement of inflation, but today it is disconnected from the actual price increases experienced by consumers.

According to the Bureau of Labor, the index is supposed to be "a measure of the average change over time in the prices paid by urban consumers for a market basket of goods and services."  If that sounds like government gobbledygook, it is.  Simply put, the CPI is supposed to measure the cost of living.

Over the past 30 years, the BLS has altered the formula it uses to calculate the CPI at least 20 times.  As part of the new methodology devised by the bureau, the cost of food and energy have been deemphasized in determining the cost of living metric.

What makes this diabolical is those two components are among the most volatile. As every consumer knows, spikes in food and energy prices can leave the family budget in tatters.  Yet in its infinite wisdom, the BLS no longer includes the full impact of these items in the index.

To understand the issue, it helps to know how the bureau collects and analyzes the data.  The government uses samples from urban areas to collect price data.  About 15,000 families nationwide are selected to participate in a point-of-purchase survey to learn what goods and services are being bought.

Once the data is organized, the bureau picks more than 200 items and weights them according to how many and how often the products and services were purchased.  Over time, the methodology has changed to put less emphasis on food and fuel prices used to calculate the cost of living.

What would motivate the BLS to make such a move?  The answer can be found in the way the federal government uses the CPI.  For example, Social Security payments are tied to inflation.  So are benefits for retired military personnel, disabled veterans and federal government pensioners.

As the cost of living increases, these payments and benefits are supposed to be adjusted upward.  But that's only in theory.  The problem is that the current methodology engineered by government bureaucrats understates real inflation, negating the need to increase payments to vets and others.

Stagnant inflation helps reduce the impact on the federal budget.  But in real terms it hurts seniors and military veterans because their payments have less purchasing power and their benefits do not keep up with the mounting cost of medical care.

The Federal Reserve Bank also uses inflation as a key ingredient in determining monetary policy.  Its stated goal is to keep inflation at two percent or less over the long run.  One reason the Fed has kept interest rates low is because inflation has remained tepid.

However, the Fed uses a more reliable inflation tool.  Instead of the CPI, it looks to another gauge, the Personal Consumption Expenditures Price Index or PCE.  The measurement uses business surveys, rather than less reliable consumer surveys.  The formula also adjusts for changes in consumer behavior.

Interest rates effect every American.  When interest rates are low, saving money is less attractive, borrowing is cheaper and consumer spending usually rises.  Conversely, when interest rates spike, savers earn more on deposits and borrowing becomes expensive, which discourages spending.

There are also political reasons for the government to tinker with the CPI.  Rising inflation numbers never reflect well on the administration in power.  It most likely cost President Jimmy Carter a second term. When he left office in 1981, inflation stood at a whopping 10.3 percent.

With today's oil prices temporarily in free fall, conventional wisdom says inflation is low.  However, spiraling food costs continue to take a larger chunk out of family budgets.  Food prices in the United States climbed nearly seven percent last year.  That's inflation under any definition.

Even as food prices zoomed during the last 12 months, the official inflation rate averaged 1.6 percent for 2014 as measured by the CPI. That underscores the disassociation between the government index and the cost of living experienced by most Americans.

To address the situation, Congress should demand that the bureaucrats in the BLS include the full impact of food and gasoline prices in calculating the cost of living.   It is no longer acceptable to let unaccountable federal workers tamper with a critical measurement that impacts many Americans.