American families increasingly feel inflation’s pinch on their day-to-day necessities. Prices of milk, bread, eggs and gas are up year-over-year. So are diapers. As a mother of two toddlers, I spend more and more money on boxes containing fewer and fewer diapers. Leadership in Washington thinks that the solution to inflation is for government to send more money to give households a cushion against rising prices. But massive spending is helping drive inflation while stacking up insurmountable long-term debt. It’s time for a new approach that won’t put more pressure on family budgets now or straddle future generations with unfathomable debt.
Consumer prices increased 5.4% in June from a year prior according to new data from the Department of Labor. This the biggest monthly increase since August 2008 and, if we exclude food and energy, inflation experienced its largest move since September 1991. Households are also feeling pain at the pump as all-time high demand is pushing national gas prices higher.
For families like mine, increasing diaper prices are an added pressure on our budget that we cannot escape. According to analysis of various diaper brands, families spend about $40 to $100 per month per baby on diapers. Nielsen reportedly found that the average unit price of diapers was up 14% year over year in January. Consumer goods companies Kimberly-Clark Corp and Procter & Gamble Co., which produce popular brands like Pampers and Pull-Ups, Huggies, and Luvs, account for the lionshare of diapers in the U.S. They both have announced price increases coming again.
Across America, families recognize that their paychecks are just not going as far as they used to. The fear of inflation is palpable as Americans expect rising prices to stick around. The New York Federal Reserve Bank released research this week that showed an increase in consumer expectations of inflation.
Consumers may be able to curb dining out or cut back on clothing purchases, but diapers and gas are price inelastic necessities. Generally, as prices rise, buyers respond by purchasing less of that item. However, for price inelastic items, even if prices rise, consumers cannot reduce consumption of that item. I can’t tell my sons not to soil their diapers so much, nor can I skip diaper changes without them suffering unhealthy consequences.
There are different reasons for soaring prices of household goods. Some of it is driven by pent-up demand being unleashed. After a year locked up, Americans are driving more to work or on vacations. They are dining out and buying homes. Also, supply chain disruptions, shipping delays, and rising prices on inputs like computer chips for used cars are contributing factors. The cost of wood pulp, a key ingredient in toilet paper and diapers, for example, has soared.
There’s another factor that some lawmakers would like to ignore and that’s labor. The labor market is not rebounding as fast as it could, because federal spending to support workers during the pandemic has become counter productive. Although there is ample gas supply, there is a shortage of drivers to deliver fuel to local gas stations. Similarly, in lumber, there is no shortage of trees but turning trees into lumber and other wood products requires labor for logging, mills, and trucking. Companies report difficulty recruiting new workers even as Covid-19 concerns diminish within the widely-vaccinated adult U.S. population. Employers suggest that generous unemployment benefits are a deal that is hard to compete with.
Over half of states have or plan to end the $300 weekly federal unemployment insurance bonus provided to unemployed workers. According to a newly released Morning Consult poll, 1.8 million people would have accepted job offers had it not been for those enhanced unemployment insurance benefits. These benefits have become a disincentive to work and most Americans recognize that fact. Over half of Americans want the extra benefits to end immediately, according to a survey conducted in June for The New York Times. Only a small faction (16%) want the additional benefits to continue indefinitely.
Yet, long-term and indefinite payments are the direction that President Joe Biden and Congressional Democrats want to take us. Since universal basic income is a nonstarter, they have tapped into a workaround: entitlement expansions. By expanding new and existing giveaways to more households, they know it will be harder and harder to end them.
One new expansion will send household checks as early as this week. As part of American Rescue Plan passed in March, Congress temporarily expanded the federal child tax credit and will disburse half of the 2021 tax credit for the next six months in monthly increments. Roughly 36 million eligible families are scheduled to receive their payment of up to $300 per child starting July 15. President BIden wants to extend this benefit for another four years while others want to make it permanent.
Helping American families weather economic turmoil caused by natural disasters and downturns is why we have a social safety net. However, aid should not work against the goal of getting people back on their feet. Generous unemployment benefits are a force behind the worker shortages across industries and those shortages are driving prices higher for households. It’s a destructive cycle. If we want to give American families lasting relief, we must push back against this endless and counterproductive government spending.