I hate inflation, but there’s something delicious about the fact that this problem, above all others, is responsible for the low esteem in which voters currently hold Joe Biden and his party. Inflation is reality’s “F-you” to a central element of liberal hubris — the view that the government can do whatever the hell it wants by way of spending, energy policy, etc. and suffer no bad economic consequences.
How bad is inflation now? CNBC reports:
Wholesale prices increased at their quickest pace on record in November in the latest sign that the inflation pressures bedeviling the economy are still present, the Labor Department reported Tuesday.
The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November.
Excluding food, energy and trade services prices rose 0.7% for the month, putting core PPI at 6.9%, also the largest gain on record.
To me, and probably to many other Americans, it feels like the cost of living is rising even faster than these numbers suggest. The cost of food my wife and I buy at grocery stores increased by more than 20 percent in the past half year. The average cost of a gallon of regular gasoline in America jumped by more than 50 percent in the past year.
When will inflation recede significantly? No one knows.
We haven’t had inflation at around the 10 percent annual rate since the late 1970s-early 1980s. That bout, which can be viewed as part of a longer one (see below), lasted three years before the rate dropped to around 6 percent in 1982 and half of that in 1983. It took sky-high interest rates to achieve this relief.
In 1974, inflation rose from 6.2 percent to 11.1. This triggered President Ford’s “Whip Inflation Now” (WIN) campaign, but inflation wasn’t easily whipped. The 1975 rate was 9.1, and it didn’t dip below 5.7 percent until 1983.
There’s no way to know what will happen this time around, but it’s not unlikely that things will get worse before they get better. Certainly, things look grim for energy prices this winter, which is expected to be colder than average. According to this article:
Natural gas, which nearly half of all American families use to heat their homes, is expected to cost 30% more this winter than last. The average cost of propane and heating oil is up roughly a dollar per gallon. And to pile on these problems, in some places furnace parts are unavailable due to ongoing supply chain woes. . . .
Millions of Americans who rely on coal-fueled power plants to heat and power their homes can’t rest easy, either. . . .[A]ccording to the Institute for Energy Research, Biden’s war on American energy has actually driven up coal demand at utility companies to help power homes. Now, as the bitterly cold months of January and February rapidly approach, these essential coal stockpiles are at a dismal 87 million tons, down 35 percent from last year.
What about food prices? The spike in them has much to do with the supply chain crisis, I assume. Presumably, that set of problems is fixable but no one knows for sure whether the fix will take a matter of months or a few years.
Here, though, is a bad sign for food prices: The price of fertilizer has been skyrocketing.
The corn and soybean farmer who wrote this Wall Street Journal op-ed says he’ll pay two to three times as much for fertilizer this year as last. A friend whose family operates a farm in Nebraska tells me that fertilizer and spraying costs have “pretty much tripled” for that farm.
I imagine that supply chain problems are part of what’s driving these rising costs. But you don’t have to know much about the economics of agriculture (and I surely don’t) to conclude that if the cost of inputs needed to produce food are soaring now, the cost of the food produced with these inputs will probably continue to soar in the coming year, even if the supply chain improves during that time.
I began this post by mentioning one major form of liberal hubris — the fantasy that vigorous government spending and other drastic actions won’t produce harmful unintended consequences. A related form is the view that vigorous government action can solve nearly all of our most pressing problems.
There are things the government — and especially the Fed — can do to bring the cost of living down significantly, but rarely, I believe, in the short term. And some of Joe Biden’s key initiatives, including “Build Back Better,” seem bound to increase inflationary pressure.