The Biden Administration has unleashed a torrent of inflationary pressures on an unsuspecting American public.
Rising prices are putting increasing pressure on President Biden and the Federal Reserve to prevent inflation from derailing the recovery from the coronavirus recession.
A surge of consumer demand unleashed by government stimulus, improving vaccinations and fewer pandemic restrictions is putting a strain on global supply chains. Manufacturers and other hard-hit industries are struggling to get back up and running after a year of lockdown measures, causing supply shortages and raising costs.
All of those factors combined to push the consumer price index (CPI) up 0.8 percent in April and 4.2 percent over the past 12 months, the fastest annual rate since 2008, the Labor Department reported this past week. When stripping out the more volatile prices for food and energy, the index registered the biggest monthly increase since 1982.
While the ramped-up consumer spending is a sign of increased optimism, the Biden administration faces political risks as Americans find themselves dealing with inflation levels that the country hasn’t seen in more than a decade.
Deepening concern among Americans about inflation could derail not only Biden’s economic agenda but also the Democrats’ hopes of defending narrow congressional majorities in the 2022 midterm elections. [The Hill]
A surge of consumer demand unleashed by government stimulus, improving vaccinations and fewer pandemic restrictions is putting a strain on global supply chains. Manufacturers and other hard-hit industries are struggling to get back up and running after a year of lockdown measures, causing supply shortages and raising costs.
All of those factors combined to push the consumer price index (CPI) up 0.8 percent in April and 4.2 percent over the past 12 months, the fastest annual rate since 2008, the Labor Department reported this past week. When stripping out the more volatile prices for food and energy, the index registered the biggest monthly increase since 1982.
While the ramped-up consumer spending is a sign of increased optimism, the Biden administration faces political risks as Americans find themselves dealing with inflation levels that the country hasn’t seen in more than a decade.
Deepening concern among Americans about inflation could derail not only Biden’s economic agenda but also the Democrats’ hopes of defending narrow congressional majorities in the 2022 midterm elections. [The Hill]
Inflation, when general price levels rise, is an insidious government tax on your income and wealth, since everything costs more. It has toppled governments all around the world.
The Trump Administration always knew that the medical marvels it incentivized via Operation Warp Speed would come along faster than all the naysayers expected, and, like flipping a light switch, turn the economy back on. The administration therefore wanted to do a series of smaller, incremental economic support packages, knowing that hitting the gas too hard would slam up against a reopening economy.
By the spring it was very clear the vaccines funded by the Trump Administration would succeed in quickly restarting the economy, allowing people to get back to normal life. Nevertheless, and in contrast with the Trump Administration’s sound approach, the Biden Administration proceeded with a $1.9 trillion “American Rescue Plan” (ARP) which threw money at all sort of Democratic special interests. Any halfway decent economist will tell you that the time for big stimulus — a huge sum like $1.9 trillion — is when you know there will be a large, and sustained, shortfall in GDP and employment, as we had at the start of the pandemic.
But by the start of the year, the Trump Administration had managed to decrease the unemployment rate from a horrific 14.8% to a run-of-the-mill level of 6.3%. The Trump Administration went big at the right time, with the right kinds of programs, stopped a Depression dead in its tracks, and ushered in the fastest economic recovery in US history. The time to go big was in March of 2020, which the Trump Administration did; the time not to go big was when the Biden Administration forced the ARP through Congress along partisan lines.
The most inflationary component of the ARP is the $300 supplement to unemployment insurance, and it’s scheduled to last until September. There is plenty of evidence that the $300 supplement raises unemployment benefit levels above what workers received at their previous jobs. Such high benefit levels invite an obvious question: why would you go back to your job, put in a hard day’s honest work, when you can stay home and collect a check from the government? It shouldn’t be surprising that many workers chose to stay home.
Too-generous subsidies that reward staying at home can form a toxic brew when combined with the sudden reopening of the economy. Everyone wants to eat out, and nobody wants to wait tables. The result is inflationary pressure in low-skill services where it hasn’t been evident in many years, and can therefore easily take the Fed and the Treasury Department by surprise.
For evidence, one merely has to ask the National Federation of Independent Businesses, whose small business members reported an all-time record difficulty in filling open positions. Or, consult the BLS’ job turnover data, which finds a yawning chasm opening up between job openings and the number of hires being made. By this metric, which measures the gap between labor demand and supply, the current labor market is tighter than it was at any point in the Trump Administration!
