Inflation Continues To Rise

Inflation Continues To Rise

This week, the Bureau of Labor Statistics (BLS) released inflation data for March and the increase was worse than expected. Consumer prices have increased by 8.5% percent in the last twelve months, representing the fastest inflation rate since 1981. 

Driven by soaring prices for gas, energy, and food, high inflation has been hammering household budgets and undermining growth and confidence in the U.S. economy. Gas has risen 48% annually, electricity 11.1%, and food 8.8%. (Meat prices spiked even more: 14.8%) Yet, even when you take the more volatile prices out of the equation, it still shows so-called core prices rose 6.5% (up from 6.4% in Feb). That rate also outpaces anything we’ve seen in the past 40 years. 

So, why does this matter? Well, inflation continues to chip away at Americans’ buying power, outpace wage gains, and impact our economy. Rising costs on necessities are making it incredibly difficult for families and businesses to get ahead and, if we continue down this path, experts predict we could even see another mild recession next year.

Unfortunately, it being an election year seems to have many policymakers more focused on shifting blame away from the root causes of inflation instead of solving it. To that end, I’d like to dispel two troubling narratives:

  1. Inflation is a result of  “Putin’s Price Hike.” Not quite. Inflation had been rising at a historic rate well before the war in Ukraine, pushing up prices for food, gasoline, shelter, automobiles, and a wide range of basic consumer goods. (See graph.) Russia invaded on February 24 of 2022, making March’s BLS report the first full month we’ve had that actually reflects the impact of the war. That said, the conflict has contributed to increases in recent weeks, largely by reducing the global supply of crude oil, wheat, minerals and other key exports from both Russia and Ukraine.
  2. Businesses are increasing prices simply out of greed. Also, untrue. Costs for raw materials, labor, and transportation have increased dramatically in response to the pandemic, supply-chain disruptions, and labor force shortages. To absorb all these costs would wipe out revenues and shutter small businesses, leaving them with little choice but to raise their prices for goods and services.

Once again, inflation is the simple result of supply and demand. Pandemic-related supply chain constraints and a tight labor market coupled with loose monetary and fiscal policies from our federal government have limited the supply of many goods while simultaneously boosting demand. The result? Across-the-board price increases for American families and businesses.

Instead of shifting blame, we should learn from this. To start, let’s stop injecting cash into an idle economy. Next, let’s shift our monetary policies to be anti-inflationary by increasing interest rates through the fed. Then, let’s focus on policies that re-engage our workforce, ease regulations, reduce tariffs, and increase domestic energy production. 

If policymakers move swiftly to implement these remedies, we could see inflation cut in half by the end of the year. Anything less and the higher prices may be here to stay.