Building Back Bitter Inflation hits a 39-year high as Biden continues to demand another federal spending surge. James Freeman
https://www.wsj.com/articles/building-back-bitter-11639171577?mod=opinion_lead_pos11
Consumers and workers are taking a beating as Washington fails to maintain the value of our currency.
The Journal’s Gwynn Guilford reports:
U.S. inflation reached a nearly four-decade high in November, as strong consumer demand collided with pandemic-related supply constraints.
The Labor Department said the consumer-price index—which measures what consumers pay for goods and services—rose 6.8% in November from the same month a year ago. That was the fastest pace since 1982 and the sixth straight month in which inflation topped 5%.
The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 4.9% in November from a year earlier. That was a sharper increase than October’s 4.6% rise, and the highest rate since 1991.
Federal Reserve Chairman Jerome Powell, who seems to have abandoned the term “transitory” to describe this monetary destruction, has nevertheless succeeded in forging a Wall Street-Washington consensus that inflation will soon be heading smartly southward. Many institutional economists up and down the Acela corridor have very reasonable arguments for their case that inflation will be much lower a year from now than it is today. Let’s all hope they are right.
But U.S. savers and workers may remain skeptical, because it’s not so easy to find members of this elite priesthood who were saying one year ago that inflation would now be running at nearly 7%.
At the Fed in late 2020, many officials figured it would be a challenge to lift inflation and might take a few years to rise to their preferred level. Why Fed officials favor any inflation at all is a question for another day, but the forecast was for an era of rock-bottom interest rates that would last for years. The Journal’s Nick Timiraos reported on Dec. 17, 2020:
Many officials projected such low rates would be needed even though they projected inflation would be at the Fed’s 2% target and unemployment would fall below 4% by the end of 2023. Those projections reflect a change in the central bank’s framework adopted this summer that took a more relaxed view toward inflation.
Mr. Powell said the central bank expected to see some one-time increases in prices of goods and services due to a rebound in activity from the pandemic next year but that they were unlikely by themselves to create self-sustaining inflationary forces.
“It’s not going to be easy to have inflation move up,” said Mr. Powell. “We’re honest with ourselves and with you in the [projections] that even with the very high level of accommodation that we’re providing…it will take some time.”
If Fed officials are still being honest with themselves they must acknowledge that it didn’t take much time and it was a lot easier than they thought to erode the value of our money. And if they want to continue on their honesty kick they might also acknowledge that they really don’t know what will happen next.
Readers of this column tend to be skeptical of media experts as well, but it might be useful to review a media report from the last time U.S. inflation was running this hot. Unlike today, back in late 1982 inflation was surprising on the way down after the dizzying heights of the 1970s and early 1980s.
In the New York Times, Jonathan Fuerbringer wrote 39 years ago this month:
The outstanding achievement of President Reagan’s economic policy this year is the dramatic slowing of inflation. For the first time since the late 1960’s, inflation is clearly on the run:
* In the last year, every major price index compiled by the Federal Government has sharply slowed its rate of rise and raw commodity prices have actually fallen.
* In the midst of the critical Christmas shopping season, many of the nation’s leading retailers are cutting prices. The rest are holding prices flat or raising them far more slowly than in the past.
Of course appearing in the Times, the account gave no credit to Reagan’s supply-side policies, but did get the answer partially correct. “The price indexes were subdued by the old-fashioned conservative cure, with a tight-fisted Federal Reserve Board sitting at the monetary controls,” reported Mr. Fuerbringer.
The cure had inflicted heavy economic costs in the short term, but the Times report appeared just as America was embarking on a period of soaring prosperity. The fourth quarter of 1982 marked the economy’s return to growth and the beginning of the great Reagan boom that would roar through the end of his second term and into the early years of the first Bush presidency.
Inflation turned out be much lower in 1983 than many economists had expected as the economy took flight, thanks to a combination of sound money and the Reagan fiscal and regulatory incentives to work, save and invest.
Now Washington seems determined to run the opposite experiment, with easy money and President Joe Biden’s next big slug of inflation fuel, known as the Build Back Better plan, pending in the Congress. It’s a historically massive bundle of subsidies, distortions and disincentives to productive labor. A new report from the Congressional Budget Office says that if one removes the bill’s phony expiration dates Democrats have applied to programs they never intend to allow to expire, the result is an additional $3 trillion in federal deficits over a decade.
Workers and consumers must be praying for someone with tight fists to appear in Washington.
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