Inflation accelerated more than expected to a new four-decade high in June as the price of everyday necessities remains painfully high, exacerbating a financial strain for millions of Americans and worsening a political crisis for President Joe Biden,” reports Fox News.
“The Labor Department said Wednesday that the consumer price index, a broad measure of the price for everyday goods, including gasoline, groceries and rents, rose 9.1% in June from a year ago. Prices jumped 1.3% in the one-month period from May. Those figures were both far higher than the 8.8%” predicted by Dow Jones economists.
As Fox News noted, this is “the fastest pace of inflation since December 1981.” Moreover,
Price increases were extensive, suggesting that inflation may not be near its peak: Energy prices rose 7.5% in June from the previous month, and are up 41.6% from last year. Gasoline, on average, costs 59.9% more than it did one year ago and 11.2% more than it did in May. The food index, meanwhile, climbed 1% in June, as consumers paid more for items like cereal, chicken, milk and fresh vegetables.
In another worrisome sign, shelter costs – which account for roughly one-third of the CPI – sped up again in June, climbing 0.6%, matching an 18-year-high set in May. On an annual basis, shelter costs have climbed 5.6%, the fastest since February 1991. Rent costs also surged in June, jumping 0.8% over the month, the largest monthly increase since April 1986.
Inflation is much higher in the United States than in many foreign countries. A month ago, economist Mark Perry noted that the inflation rate was only 2.5% in Japan and Switzerland, at a time when inflation was running at 8.6% in the United States. Inflation is still less than 3% in Japan.
Inflation in America may get even worse. Producer prices were “up 11.0 percent” for the most recent 12 months measured by the Bureau of Labor Statistics. That could mean an even higher inflation rate in the future, because the PPI is a “forward-looking inflation measure as it tracks prices in the pipeline for goods and services that eventually reach consumers,” according to CNBC. Inflation could rise to 10% or more if the Federal Reserve does not tighten monetary policy enough.
If the Fed does tighten monetary policy to get inflation under control, that could plunge the U.S. into a recession, the way tight monetary policy triggered a recession back in 1981-82. America’s economy is already fragile — the U.S. economy shrank in the first quarter of 2022, even as the economy grew in nations like Germany, which were harmed worse than the U.S. by the war in Ukraine. The Atlanta Federal Reserve Bank estimates that the economy shrank by 1% in the second quarter of 2022, after falling by 1.6% in the first quarter of 2022. That suggests that America is already in a recession. The shrinking economy reflects a huge rise in America’s trade deficit. In the first quarter of 2022, American exports decreased by 9.6%, while imports grew by 17.7%; U.S. productivity dropped at a 7.5% annual rate, the most since 1947.
If the Fed tightens monetary policy, it will have to do so enough to offset Joe Biden’s expansionary fiscal policy, which has increased the inflation rate. Biden’s big spending has fueled inflation, according to even Democratic economists like Larry Summers and Obama advisor Steven Rattner. As Rattner noted in the New York Times, Biden has spent “an unprecedented amount” of taxpayer money, which resulted in “too much money chasing too few goods.” Even progressive media like Vox recognize that Biden’s stimulus package “worsened inflation.”
In March, Biden signed an across-the-board increase in federal spending that will increase inflation even further. Last May, Biden proposed a record $6 trillion budget that “would push federal spending to its highest sustained levels since World War II” as a share of our economy, reported the New York Times. The Biden administration itself forecast budget deficits at more than $1 trillion for at least the next decade if his budget plan were adopted.
To deal with the high inflation of the Biden era, Senator Majority Leader Chuck Schumer (D-NY) suggested a tax increase. But raising taxes would also likely shrink the economy and deepen the coming recession that many economists predict.
Biden’s proposed “Build Back Better” plan would also lead to more inflation, according to economists across the political spectrum. Former Congressional Budget Office Director Doug Elmendorf said it will “push up” inflation. The Committee for a Responsible Federal Budget’s Marc Goldwein said it would create “inflationary pressures.” Bank of America’s Ethan Harris said it will “create even more price pressure.”The U.S. economy has recently underperformed many European economies, a shift from the Trump era, when the U.S. economy outperformed Europe, especially during the pandemic year of 2020, when Britain, France and Italy experienced much sharper economic declines than the U.S. The U.S. economy shrank 3.5% in 2020. The economy shrank much more in Europe: 7.9% in France, 9.9% in the United Kingdom, and 8.9% in Italy.