If you’re suffering from inflation this holiday season, you’re not alone. Businesses are also crushed. Over the past 12 months, prices paid by businesses have risen 7.4%, according to the latest data from the Producer Price Index (PPI), used to measure “wholesale inflation”. Both buyers and sellers are victims of this modern-day Grinch.
But higher prices are not a holiday phenomenon. Prices began to rise soon after Biden took office in early 2021, fueled by runaway government spending and the Federal Reserve printing money to fund the resulting deficits. Under Biden, the PPI rose 16.3%, while the consumer price index (CPI) — which measures price increases paid by consumers — rose about 14%.
In fact, these cost increases were even worse than expected. The latest PPI data has revised upwards for the past four months. This means that inflation is even higher than we thought before the midterm elections.
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This wholesale inflation is ultimately passed on to consumers in the form of higher prices. However, companies shielded customers from some price increases to preserve sales, which is why the PPI has been hotter than the CPI for every month of Biden’s presidency.
This fact is a blow below the waterline of the administration’s talking point that inflation is somehow caused by corporate greed. If that were really the case, companies would be raising prices for consumers faster than their own costs were rising. Instead, many businesses absorb these higher costs, but only temporarily.
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Ultimately, businesses pass on the entire wholesale inflation freight to consumers. Even if wholesale inflation fell to zero percent overnight, the CPI would continue to rise for some time and consumers would see prices soar even higher. Grinch inflation is here to stay for a while.
But you wouldn’t know anything bad was happening by listening to the Biden administration. They herald the headline PPI figure of 7.4% as a win, as the same index posted an annual increase of 11.7% in March this year. For context, that’s three times the previous high for the PPI of 3.4% before Biden became president. Either way, the latest wholesale inflation rate — which is still double the all-time high before Biden — is glowing.
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To acclaim wholesale inflation at 7.4% when it is below 11.7% is damning with faint praise. At this rate, the prices paid by companies will double in less than a decade. That means lower revenue, fewer employees, and much higher customer costs.
Although the slowdown in inflation is certainly welcome, it is not a harbinger. By opening the Strategic Petroleum Reserve, Biden flooded the market with crude, which momentarily lowered energy prices. But when the tap is finally turned off, if for no other reason than the salt domes are emptied, prices will resume their relentless upward march.
This is bad news for millions of American families. Record diesel prices, for example, drove up prices across the economy and were a key contributor to creating high inflation for four decades. This caused US households to lose $1 trillion in net worth in the third quarter of this year, after losing $6 trillion in the second quarter. No wonder nearly 70% of Americans struggle to buy food, with some having to fund groceries with credit cards.
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In the world’s wealthiest country, American families have been reduced to cutting spending during a season when they are meant to celebrate and give thanks for their abundance.
The federal government’s monetary mismanagement and fiscal clumsiness caused this pre-Christmas inflationary nightmare, and only a reversal of these misguided policies will stop inflation at both the wholesale and consumer levels.
Above all, the Biden administration must end its war on reliable American energy. The hackneyed talking point about the thousands of drilling leases available is laughable, given the delays the administration artificially creates in the permitting process.
It’s not like a drill lease is somehow a green light to start pumping right away. Regulatory burdens on the energy industry are clearly holding back production, while Biden’s promise to shut down the industry altogether has chilled investment.
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Instead of kneeling to Saudi Arabia and Venezuela, America should turn on its own taps. This would lower prices throughout the economy.
Yet it is equally important for Congress to get its finances in order and stop its spending sprees.
Simultaneously, the Fed must stop financing congressional deficits with printed money. This will stop the devaluation of the dollar and stabilize prices.
The question is not how to cure inflation, but whether Washington has the political will to do so. If not, the inflation Grinch will hang around long after Christmas.
EJ Antoni is Regional Economics Research Fellow at the Heritage Foundation’s Data Analysis Center and Senior Fellow at the Committee to Unleash Prosperity.
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