If you’re h
urting from inflation this holiday season, you’re not alone. Businesses are getting crushed too. In the last 12 months, prices paid by businesses rose 7.4 percent, according to the latest producer price index (PPI) data, used to measure “wholesale inflation.” Shoppers and sellers alike are victims of this modern-day Grinch.
But the higher prices are not a holiday phenomenon. Prices started rising shortly after Biden took office in early 2021, fueled by runaway government spending and the Federal Reserve printing the money to finance the resultant deficits. Under Biden, the PPI has risen 16.3 percent, while the consumer price index (CPI)—which measures price increases paid by consumers—is up about 14 percent.
In fact, those cost increases were even worse than previously estimated. The latest PPI data revised the last four months upward. That means inflation is even higher than we thought it was before the midterm election.
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This wholesale inflation is ultimately passed on to consumers in the form of higher prices. However, businesses have been shielding customers from some price increases to preserve sales, which is why the PPI has run hotter than the CPI for every single month of Biden’s presidency.
This fact is a shot below the waterline to the administration’s talking point that inflation is somehow caused by corporate greed. If that were truly the case, then businesses would be raising prices on consumers faster than their own costs were increasing. Instead, many firms are absorbing those higher costs, but only temporarily.
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Eventually, businesses pass the full freight of wholesale inflation on to consumers. Even if wholesale inflation fell to zero percent overnight, the CPI would continue rising for some time, and consumers would see prices climb even higher. The inflation Grinch is here to stay for a while.
But you wouldn’t know anything bad is coming down the pike by listening to the Biden administration. They are heralding the 7.4 percent headline PPI number as a victory, since the same index showed an 11.7 percent annual increase in March of this year. For context, that is three times the previous record high for the PPI of 3.4 percent before Biden became president. Somehow, the latest wholesale inflation rate—which is still twice the record high before Biden—is laudatory.
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Cheering 7.4 percent wholesale inflation as less than 11.7 percent is damning with faint praise. At this pace, prices paid by businesses will double in less than a decade. That means lower earnings, fewer employees, and higher costs to customers—much higher.
Although the slowdown in inflation in certainly welcome, it’s not a sign of things to come. By opening the strategic petroleum reserve, Biden has flooded the market with crude, which has momentarily brought down energy prices. But when the spigot is eventually shut, if for no other reason than the salt domes are emptied, prices will resume their relentless march higher.
That’s bad news for millions of American families. Record high diesel prices, for instance, raised prices throughout the economy and were a key contributor to creating four-decade high inflation. That caused American households to lose $1 trillion in net worth in the third quarter of this year, and that was after losing $6 trillion in the second quarter. No wonder almost 70 percent of Americans are struggling to buy food, with some having to finance groceries on credit cards.
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In the wealthiest nation on earth, American families have been reduced to cutting back in a season when they’re supposed to be celebrating and giving thanks for their abundance.
The monetary mismanagement and fiscal bungling in the federal government has caused this inflationary nightmare before Christmas, and only a reversal of those misguided policies will stop inflation at both the wholesale and consumer levels.
INFLA
First and foremost, the Biden administration needs to end its war on reliable American energy. The hackneyed talking point about thousands of available drilling leases is risible, given the delays which the administration artificially creates in the permitting process.
It’s not as if a lease to drill is somehow a green light to begin pumping immediately. The regulatory burdens on the energy industry are clearly holding back production, while Biden’s promise to end the industry altogether has chilled investment.
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Instead of going on bended knee to Saudi Arabia and Venezuela, America should open its own taps. That would bring prices down throughout the economy.
Yet, equally important is for the Congress to get its financial house in order and stop its profligate spending sprees.
Simultaneously, the Fed must stop financing Congress’s deficits with printed money. That will stop the dollar’s devaluation and stabilize prices.
The question is not how to cure inflation, but whether Washington has the political will to do it. If it doesn’t, the Grinch of inflation will be hanging around long after Christmas.
E. J. Antoni is a research fellow in regional economics at The Heritage Foundation’s Center for Data Analysis and a senior fellow at Committee to Unleash Prosperity.