The Inflation Picture Darkens

Early July brought news that tells Americans two things: First, they face a terrible inflation. Consumer prices (CPI), according to the Labor Department, rose 1.3% in June and stood 9.1% above year-ago levels. Second, it tells them how ridiculous are administration stream of excuses for these price pressures, much less last year’s claims that price pressures were “transitory.” If it was not already clear, the nation’s inflation problem is a fundamental one.

The CPI figures in the latest report were grim. Food prices rose 1.0% in June and are 10.4% above year-ago levels. Food at home costs 12.2% more than a year ago. Energy prices overall rose 7.5% in June and stand 41.6% above where they were in June of 2021. Gasoline prices rose 11.2% in June and are a whopping 60% higher than a year ago. The so-called “core” inflation measure of goods and services other than food and energy rose 0.7% in June and are 5.9% above year-ago levels. This may look moderate compared to the picture in food and energy, but it is nonetheless far above the Federal Reserve’s (Fed’s) 2.0% target for acceptable inflation. And within this broad “core” area, prices are up at unacceptable rates in every category. Services – including shelter, medical care, and transportation — are 5.5% more costly than a year ago.

America’s pain 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%, have failed even to have begun to keep pace with inflation. After accounting for price hikes, real hourly earnings fell 1.0% in June from May. The same was true for weekly earnings. Compared to year-ago figures, real hourly earnings are down 3.6% and real weekly earnings are down fully 4.4%. This is a considerable setback in the average American’s living standard.

Clearly matters make a mockery of Washington’s excuses. Now, last year’s claims from Fed Chairman Jerome Powell, Treasury Secretary Janet Yellen, and President Joe Biden that the price pressures would not persist sound like a bad joke. Nor does such building inflationary pressure yield to the president’s insistence that it is all a matter of supply chain problems or more recently, Vladimir’s 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.

Back in 2008, during the financial crisis, the Fed poured new money into financial markets by keeping interest rates near zero and buying bonds directly, mostly 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 policy makers could do in the circumstance. But as the economy and its financial markets began to recover in 2009, both the Fed and the government kept up these policies and continued to do so, to a greater or lesser extent, for all the years that followed through the end of Obama’s term, through 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 government through the printing press and a classic prescription for inflation.

From this it should be clear that it will take a good deal of time and effort to ease this inflationary pressure significantly. Fed Chairman Powell seems at last to have awakened to this need. President Biden has not yet 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, it is a mystery why Biden persist with this nonsense. He must know that he is not to blame for the mistakes of Obama and Trump. But then, he must also know that he does share some of the blame. His administration did engage in two huge spending initiative last year and is still pushing an even larger “Build Back Better” scheme. If Chairman Powell has given up excuses and is taking matters seriously, the White House owes the nation at least as much.