For Luther, the real dynamic behind the recent spike couldn’t be more basic: The overall dollars America’s paying for goods and services is rising a lot faster than the quantities of cars, appliances, or hotel rooms we’re producing and supplying. “There’s a grain of truth in the tariffs and oil price argument,” he says. “But those price increases mainly take money away from what’s spent on other things, and don’t have a major impact on overall inflation. The fundamental problem is that more money is chasing the same number of goods. We have an aggregate demand issue, not a supply disruption issue.”
Luther explains that “aggregate demand” or “total spending” comprises all domestic expenditures by consumers, government, and businesses for everything from plants to inventories. So where is all this excess money coming from? A major source is a ramp in government spending: the CBO forecasts that federal outlays will rise a lofty 6% in FY 2026 (ended in September). An obvious contributor, also cited by Powell, is the king’s ransom being lavished on AI data centers, projected to reach almost $1 trillion this year, multiples of the number three years ago. To boot, consumers—especially the well-to-do—continue to spend big time on everything from dining out to health and wellness. The “wealth effect” from a stock market led by an S&P that’s gained 28% in the past year also likely emboldens folks to reach deeper into their wallets.
The main culprits remain in Washington, where they print whatever money they require to cover their spending addiction.