High inflation continued to rock the nation in April as the consumer price index rose 8.3% from one year prior. IWF’s Inflation Tracker highlights price increases on popular household items.
President Biden has finally made addressing inflation his “top domestic priority” in a speech to the American people. He explains what is causing inflation:
I want us to be crystal clear about the problem.
There are two leading causes of inflation we’re seeing today. The first cause of inflation is a once-in-a-century pandemic. Not only did it shut down our global economy, it threw the supply chain and demand completely out of whack, especially in countries where more effective recovery responses weren’t available, especially in those sectors that rely on semiconductors.
These supply challenges have been further hampered by the onset of Delta and Omicron viruses. And you’ve all seen it and you’ve all felt it.
And this year we have a second cause — a second cause: Mr. Putin’s war in Ukraine.
You saw — we saw in March that 60 percent of inflation that month was due to price increases at the pump for gasoline.
Putin’s war has raised food prices as well, because Ukraine and Russia are two of the world’s major breadbaskets of — for wheat and corn — are, essentially, completely stalled.
Is it true that the pandemic and Vladimir Putin are the causes of the current near 40-year-high inflation?
Mostly false or misleading. Significant errors or omissions. Mostly make believe.
President Biden is disingenuous. He wants to claim credit for rapid jobs growth and unemployment declines, yet deny blame for rising inflation.
Biden’s policies and massive congressional spending have been drivers of nearly 4-decade-high inflation. Instead of admitting this, the president is digging in deeper with solutions to a different problem. Perhaps he hopes that inflation will somehow disappear. It won’t.
First, it’s true that the pandemic significantly disrupted the supply chain at the start of 2020. Covid-19 led to disruptions and shutdowns at factories and ports in China. Given that nearly all (90 percent) of all exported goods–including parts and finished products–are transported by sea, these shutdowns had a rippling impact on imported goods.
Here in the U.S., we entered an atypical pandemic recession in Q1 of 2020. Instead of Americans cutting back on purchases of goods, demand for durable and non-durable goods remained strong. That is due to multiple federal COVID spending bills that sent cash to American households. While some businesses and employers were temporarily shuttered, many workers were able to work remotely. Services such as haircuts and events ceased but consumers shifted to spending on goods.
The economic recovery was swift and by the end of 2020, the rebound was clear. More stimulus for consumers was unnecessary, but incoming President Biden insisted on his own stimulus package.
As we’ve written previously, that bill drove some of the inflation we are experiencing today:
Trillions of dollars in federal spending are fueling inflation. The nearly $2 trillion American Rescue Plan passed in early 2021 added another round of stimulus (stimulus checks to most households, the expansion of the child tax credit paid out monthly, and the extension of generous unemployment benefits) on top of the trillions provided to households in 2020.
This stimulus came just as the economy was reopening. Vaccines were being widely distributed. States and cities were ending lockdowns and relaxing the restrictions on businesses and Americans. Instead of helping Americans who lost income, government economic stimuli became a disincentive to work while padding the savings of many households.
Demand for goods skyrocketed early in the pandemic as consumers had a lot of cash…
Meanwhile, millions of workers left the workforce. They may have been laid off, had school and childcare challenges, retired, were sick or were fearful of getting sick. Even as workplaces reopened, generous government benefits incentivized many workers to stay out of the workplace in 2021.
With record-high open positions and millions of workers out of the labor force, production on goods slowed leading to fewer goods. Prices rose as a result. Supply-chain disruptions due to fewer production of inputs and manufacturing don’t help but they are not the main driver of inflation.
His embrace of a radical climate-change agenda and policies that undermine domestic U.S. oil and natural gas production is another piece that President Biden left out of the inflation puzzle.
Under President Donald Trump, the U.S. became both energy-independent but also a net exporter of energy. That has been reversed by President Biden. Kelsey Bolar explained,
The Trump administration achieved this in part by streamlining regulations that hindered U.S. pipelines and natural gas development on federal lands.
When President Joe Biden took office, he reversed this progress. In an attempt to appease climate activists, his administration placed moratoriums on oil and gas leases on federal lands and made it harder and more expensive to produce natural gas.
In May 2021, the Biden administration officially reversed Trump-era sanctions against the Nord Stream 2 pipeline, allowing the project to move forward despite bipartisan opposition in Congress and warnings from former Secretary of State Mike Pompeo that doing so would undermine American national security. During the same period, the Biden administration obstructed pipeline development at home and in some cases killed these projects altogether. Pipelines are OK so long as they’re not in our own backyard, so the logic goes.
Energy is a major driver of rising inflation. While Russia’s invasion of Ukraine in March 2022 caused the price of oil to spike, it was already on the rise. Gasoline hit its highest recorded price on May 11, 2022, at $4.40, but one year ago it was $2.96 and about $1.96 on average for the month of May 2020. Gas prices had recovered to pre-pandemic levels by February of 2021, but accelerated after that and skyrocketed this spring.
Gas prices are not likely to slow down as we approach the summer, either. Due to clean-energy regulations, gas stations are required by federal regulation to shift to a summer-blend that is costlier beginning June 1.
President Biden touts his release of 180 million barrels of oil from the Strategic Petroleum Reserve as a solution, but that supplies just 5% of Americans’ energy needs, or less than two weeks.
President Biden’s claim is very misleading. He is gaslighting the American people on the causes of inflation by deflecting from his own policies. As surveys indicate, they are not buying it and believe that he and others in Washington are responsible.