In his State of the Union address, President Joe Biden claimed US inflation is a result of price-gouging by corporate bogeymen. Recent statistics suggest other causes, some of which will likely persist through this election year – and the president’s narrative is not likely to hold up as rents, wages, and taxes rise, all increases that are hard to blame on corporate America. It is also difficult to fault businesses for raising wages or to ignore the ongoing impact of massive federal spending under this administration. Stubborn inflation may prove a sticky wicket for Biden-Harris 2024.
Pinning inflation on any one cause is always sketchy, but the Biden plan has been to point socialist fingers at the greedy rich, not the profligate government. This may be a credibility step up from perpetually linking sloppy monetary policy with COVID-19, but finger-jabbing about shrinkflation (smaller product packaging) was recognized even by the Associated Press as “part of a broader strategy to reframe how voters view the economy.” However, warping perceptions is more the province of Timothy Leary than economics and money supply – Joe Biden’s policies seeded the inflation he seeks to scapegoat onto others.
Biden doubled down on the inflation charade in his State of the Union address, proclaiming "Too many corporations raise their prices to pad their profits, charging you more and more for less and less…." But the federal government doesn’t even offer products to taxpayers whom it charges more and more in taxes for less and less effective policies. There is no question that the Build Back Better legislation overheated the money supply and seeded inflation, further fueled by the oxymoronic Inflation Reduction Act that even Biden later conceded was misnamed: “I wish I hadn’t called it that. It has less to do with reducing inflation than it does providing for alternatives that generate economic growth…."
Sticky Inflation is Sticking
Recent inflation indices by the Federal Reserve present profound obstacles to the Orwellian “bad-company” narrative. Accurately tracking inflation is such a challenging economic exercise that several different measurements are monitored, including “core” versus “headline” inflation, but also between “sticky” and “flexible” costs for certain goods and services. Numbers out for February from the Fed suggest both are moving upward, and neither has anything to do with the size of a Snickers bar.
Sticky inflation refers to consumer prices that do not respond quickly to changes in demand, particularly wages and housing. These tend to exert a drag on the economy and can also be fueled by rising medical service and education costs – writing off student loans is not free, after all. The recent sticky-price CPI issued by the Federal Reserve Bank of Atlanta suggests that sticky-price inflation may be sticking around due chiefly to higher wages and service prices. Wages are currently rising faster than inflation:
“The Atlanta Fed's sticky-price consumer price index (CPI)—a weighted basket of items that change price relatively slowly—increased 4.0 percent (on an annualized basis) in February, following a 6.7 percent (revised) increase in January. On a year-over-year basis, the series is up 4.4 percent.
“On a core basis (excluding food and energy), the sticky-price index increased 4.3 percent (annualized) in February, and its 12-month percent change was 4.4 percent.”
Sticky inflation threatens to be a particularly sticky Biden campaign wicket because it can have an impact on monetary policy: the Fed seeks to keep inflation low (a target of 2%): sticky inflation threatens to become “persistent” inflation, pushing monetary authorities to raise or maintain interest rates. During COVID-19, Biden pitched that inflation was “transitory,” but again those pesky facts of math persist. Though Biden and the MSM are signaling that the Fed will soften on rates, the sticky-price CPI prompted Fed Chair Jerome Powell to “single out persistently high services prices as a concern and indicated the central bank’s policymakers would like to see services inflation ease further before starting to cut their key interest rate.”
Flexible CPI Also Trending Upwards
The Fed also tracks “flexible” inflation, which monitors items whose prices change more dramatically or frequently. This flexible price measure is perceived to be more responsive to changes in the current economic environment, or the “level of economic slack.”
Flexible CPI is also sounding warning signals. After spiking sharply in 2021 (2.27% in June and 2.09% in October), this measure was running cool in late 2023, even dropping .61% in October and another .34% in November. But after dropping an additional .39% in January 2024 to permit sanguine announcements of inflation defeat by the Biden team, the February number punched up .67% – an annualized rate of 8.04%. It is premature to announce inflation victory.
Price Forecasts for 2024
The complexity of accurately measuring inflation pressures fills textbook analyses and boardroom predictions, but is also why government spending must be closely watched for what Milton Friedman dubbed “money mischief” – big spenders kick the can of consequences of reckless money-printing down the road while rewarding pet projects (like costly, regressive renewables). Large infusions of fiat currency inflate real estate and commodity prices first, and eventually wages – which never catch up. This is precisely what America has witnessed: For some time, inflation dramatically outpaced wages, which are now catching up, however anemically. Biden increased food and housing prices, and now blames corporate food makers and the housing market for the resultant bubble. Using such logic Biden’s pipeline shutdowns hiked gas prices, but price-gouging gas companies are to blame. The Biden administration seeks to pull the wool over voters’ eyes rather than own up to the dangerous economic forces it has unleashed.
Should consumer spending (already soft) start to dip and the global or national economy cool, America may be on the verge of a new period of stagflation. In order to shore up votes for the election, the Biden crew is pulling out all stops to blame someone else for the nation’s precarious condition: if not COVID-19, then Donald Trump, or Vladimir Putin, or corporate greed. Interest rates and housing prices aren’t higher due to sloppy spending: it’s the greedy banks! But other policies feed into this contagion, including open borders and floods of Haitian or Palestinian refugees, all in need of housing in a nation already short by millions of units. Higher electricity and fuel prices impact residential construction and rental costs.
However, Biden’s Treasury Secretary Janet Yellen has announced that sticky inflation will abate because rental and housing prices will cool in 2024:
“Treasury Secretary Janet Yellen said she expects a moderation in the rise of housing costs will help deliver lower inflation in 2024.
“....I have every expectation that the single largest contributor to inflation is going to be moving down over this year…. Inflation is down two-thirds from the high it reached in 2022,” Yellen said. “I wouldn’t expect this to be a smooth path month-to-month, but the trend is clearly favorable.”
That sounds like transitional inflation redux, a wishful narrative that may grow harder to sell as the year unfolds. It is truly to be hoped that the Treasury Secretary is correct. But claiming Joe Biden has not fueled inflation, or that it has safely abated, is tantamount to claiming the border is secure and a flood of new refugees will boost the economy. Joe Biden’s dissembling is persistent even if inflation is not. There is only so much baloney that an economic sandwich can hold.
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