Each bit of inflation news discredits Washington’s excuses.
The United States recently received still more bad inflation news. The Labor Department reported that its benchmark consumer price index (CPI) rose 1.3 percent in June and stood 9.1 percent above year-ago levels.
This news makes any administration excuses for these price pressures even less convincing than they were and makes still more ridiculous Washington’s claims last year that price pressures would be “transitory.” The picture now is clear and beyond cavil: The nation’s inflation problem is fundamental.
The CPI figures are simply terrifying. Pressures are widespread. Food prices rose 1.0 percent in June and are 10.4 percent above year-ago levels. Food at home costs 12.2 percent more than it did a year ago. Energy prices overall rose 7.5 percent in June and stand 41.6 percent above where they were in June 2021. Gasoline prices rose 11.2 percent in June alone and are a whopping 60 percent higher than a year ago.
These sectors lead, but inflation is evident everywhere. Prices for goods and services other than food and energy rose 0.7 percent in June and are 5.9 percent above year-ago levels. This may look moderate compared to the picture in food and energy, but it’s nonetheless far above the Federal Reserve’s (Fed) 2.0 percent target for acceptable inflation. And within this broad area, prices are up at unacceptable rates in every category. Services—including shelter, medical care, and transportation—are 5.5 percent more costly than a year ago.
The pain of these price pressures is evident in the wage data also recently reported by the Labor Department. Hourly and weekly earnings, though each rose in June by 0.3 percent, have failed even to have begun to keep pace with inflation. After accounting for price hikes, real hourly earnings fell 1.0 percent in June from May. The same was true for weekly earnings. Compared to year-ago figures, real hourly earnings are down 3.6 percent, and real weekly earnings are down fully 4.4 percent. This is a considerable setback in the average American’s standard of living.
Clearly, matters make a mockery of Washington’s excuses. Last year’s claims from Fed Chairman Jerome Powell, Treasury Secretary Janet Yellen, and President Joe Biden that the price pressures wouldn’t persist sound like a bad joke. Nor does such building inflationary pressure yield to the president’s insistence that it’s all a matter of supply chain problems or, more recently, Vladimir Putin’s invasion of Ukraine. Instead of such weak excuses, the inflation presently confronting the nation has its roots in a long period of policy mistakes over what is now more than a decade.
In 2008, during the financial crisis, the Fed poured new money into financial markets by keeping interest rates near zero and buying bonds directly, mainly from the Treasury—what the Fed referred to as quantitative easing. The federal government ran huge deficits to help relieve the Great Recession that followed that crisis. There was little else policymakers could do in the circumstance.
But as the economy and its financial markets began to recover in 2009, the Fed and the government kept up these policies. They continued to do so, to a greater or lesser extent, for all the years that followed, through the end of President Barack Obama’s second term, through President Donald Trump’s single term, and into Biden’s.
In just the past couple years, the Fed has used new money to purchase almost $5 trillion in new government debt, effectively the digital equivalent of financing the government through the printing press and a classic prescription for inflation.
With this as background, it should be clear that removing inflationary pressures will take a good deal of time and effort. Powell seems to have realized this need. But Biden hasn’t done so. He continues to blame inflation on everything but government policy, including, of all people, the mom-and-pop operations that own most of the nation’s gas stations.
In one sense, Biden’s reluctance to talk about fundamentals is a mystery. After all, he isn’t to blame for the mistakes of Obama and Trump. But then he must also know that he shares some of the blame. His administration did engage in two huge spending initiatives last year and is still pushing an even larger “Build Back Better” scheme.
If Powell has given up excuses and is taking matters seriously, the White House owes it to the nation to do the same.
