Inflation, which never really went away, is accelerating again. The consumer price index (CPI) report for August confirms what I’ve been saying since January, which is that inflation—driven by rising oil prices—would reaccelerate in the second half of the year.
August’s headline CPI result came in at 3.7 percent, up uncomfortably from July’s 3.2 percent print. The index components for gasoline and fuel oil increased by 10.6 percent and 9.1 percent, respectively, from July on a seasonally adjusted basis. Even excluding the more volatile food and energy categories, core CPI rose by 4.3 percent in August, driven by rising costs of shelter.
Retail gas and diesel products, airlines, rail, and trucking companies, along with food and even electricity to the home, are heavily affected by the global price of oil.
Oil prices are up by one-third from July’s lows and now hover just below $90 per barrel. While at a 10-month high, prices remain well below last summer’s high, when oil topped $120 per barrel and inflation hit 9.1 percent. But market pressures are likely to push oil prices further in the wrong direction. And with higher oil prices, inflation will follow as night follows day.
Global oil markets remain tight. U.S. sanctions on Russia have hurt Western markets more than Russia itself. OPEC+, which includes Saudi Arabia, Iran, and Russia, among others, has been enforcing production limits. Iran and Russia are sanctioned by the United States but still manage to get oil to China, India, and elsewhere. OPEC now estimates that the world will be short by more than 3 million barrels in the fourth quarter, putting further pressure on prices.
The Biden administration has foolishly drained America’s emergency supply of oil in a vain attempt to hold back the tide of rising prices resulting from global supply constraints.
The Biden administration drew more than 265 million barrels from the U.S. Strategic Petroleum Reserve (SPR) between November 2021 and January 2023, when it finally paused in the face of falling oil prices. But starting in April 2023, seeing that higher gas prices would again threaten the economy and stimulate inflation, the Biden administration quietly began making further withdrawals. At the beginning of September 2023, the SPR had only 350 million barrels remaining, less than half of its capacity and down by 45 percent from the end of 2020.
Using the SPR as a political tool—i.e., to effect price controls before the midterm elections—was always a foolish idea. At worst, the move will leave the country well short in the event of a national emergency affecting crude oil production and transport. As painful as higher prices are, the United States shouldn’t run this strategic risk for a few pennies at the pump. More likely, the United States will be required to replenish the SPR at much higher prices than before, widening the budget deficit even further.
America has an abundance of oil and gas reserves. This is our great strategic advantage in the competition of nations. If this remarkable natural resource is allowed to be developed, it will ensure our energy independence and thus national security, reduce prices across the board, and stimulate U.S. economic growth.
Let us pray that whoever wins the White House in November 2024 has the wisdom to reverse course—before it’s too late.
