President Biden promised to “transform” the nation. He is fulfilling that promise. Instead of a country enjoying a strong recovery with stable prices and sustainable deficits, we now have rampant inflation, falling real wages and spiraling federal debt.
What’s more: It could get worse.
Democrats have giddily announced their plan to spend $3.5 trillion on “infrastructure,” notwithstanding fresh reports showing inflation heating up to the highest level since the 1990s.
Even as Democrats plot to rack up bigger budget deficits to build their power base, the Bureau of Labor Statistics provides yet more evidence that inflation is taking hold. The producer price index for June jumped 7.3 percent from a year ago, beating forecasts that have constantly been, like the Federal Reserve, behind the curve.
It’s simple: between the Federal Reserve spewing out more than $4 trillion in cheap money over the past year, and Congress signing off on “relief” packages totaling an unprecedented $3 trillion, there is too much money chasing too few goods.
If Democrats get their way and shove another $3.5 trillion into the mix, inflation will get much, much worse. Already, the out-of-control spending is slamming workers’ paychecks.
Because of rising prices, real wages are falling, even as the job market is tight as a drum. As reported by Bloomberg, “Wage growth rose steadily through the second quarter, but higher consumer prices are taking a toll. Inflation-adjusted average hourly earnings fell 1.7% in June after slumping 2.9% a month earlier…”
Inflation will only get hotter if Biden and congressional Democrats press ahead with even more grandiose spending, attempting to insert the federal government into every nook and cranny of Americans’ lives. Sen. Bernie Sanders (I-Vt.), head of the Senate Budget Committee, who describes himself as a democratic socialist, is effectively running the show; he wants to give Americans free college, free health care, free childcare, free senior care, free housing and who knows what else.
Sanders does not seem to care where the money will come from or who it hurts; he has a vision.
Senate Majority Leader Chuck Schumer (D-N.Y.) and House Speaker Nancy Pelosi (D-Calif.) have a vision, too — to send hundreds of billions of dollars to the teacher unions, the SEIU and other special interest groups.
Biden has a somewhat weaker vision. He has promised not to raise taxes on anyone making less than $400,000 a year. But rising prices on everyday goods is the worst kind of taxation, hurting low-income earners and seniors on fixed incomes.
Price increases no longer look “transitory,” which has been the ready answer from economists singing in unison with Federal Reserve Chairman Jerome Powell. Rather, inflation appears to be gaining speed and taking hold. A growing number of analysts are now describing the price hikes as entrenched, and likely to endure.
Former Obama administration economist Larry Summers has been one of the more vocal critics of Democrats’ spending spree, warning for months that it could spur higher prices. In response to the new data, Summers is adamant, saying recent reports raise “my degree of concern about an economic overheating scenario. There are huge uncertainties in the outlook, but I do believe the focus of concern right now should be on overheating.”
The latest consumer price report, which like the PPI came in substantially higher than expected, shows prices paid for everyday goods rose 0.9 percent month-to-month in June; economists were expecting 0.5 percent. That’s a big miss, showing the so-called experts remain behind the curve, including the Federal Reserve. Year-over-year, prices were up 5.4 percent, the most since 2008. Core inflation, excluding energy and food prices, rose 4.5 percent from June 2020, the biggest jump since November 1991.
Numerous categories of goods showed robust price hikes. New and used cars, for instance, were up the most ever recorded, while the cost of food advanced 0.8 percent, twice the May increase. Gasoline prices were up 45 percent compared to a year earlier, while rents advanced 3.6 percent.
The Federal Reserve and their compliant chorus have until recently dismissed concerns about inflation, noting that supply bottlenecks and other leftover effects from the shutdown of the government would be resolved shortly, and that inflation would recede towards their 2 percent target over the next year or so.
Many are beginning to reject that happy talk. The price of houses, for instance, is soaring, and inevitably has begun to translate into higher rents. In June, rental prices were up 3.6 percent year-to-year; that category comprises some 40 percent of the CPI. How could the Fed not have foreseen the increase? It’s an increase that will not abate any time soon as we cannot quickly build enough houses to stem rising prices and rents.
June’s CPI report is not the only warning sign that price hikes are accelerating and moving through the economy. Companies are reporting that they are facing wide-spread cost increases and that they are raising prices to maintain margins. Companies from JM Smucker to Chipotle to Black and Decker have announced cost pressures that have led to price hikes. Disney just raised the price of ESPN+ by 17 percent; that has nothing to do with supply chains.
Common sense consumers are way ahead of the Federal Reserve. They see the price of gasoline, houses and pork going up, and are now anticipating inflation of 4.8 percent over the coming year; they will begin to act accordingly.
They are not alone. Almost half of small business managers recently reported to the National Federation of Independent Businesses that they are raising prices. According to the NFIB, “The net percent of owners raising average selling prices increased seven points to a net 47% (seasonally adjusted), the highest reading since January 1981.”
President Biden frequently boasts that his economic plan is working. If skyrocketing inflation and lower real wages are part of that plan, he might want to come up with an alternative.
Published on The Hill