The last year has been full of economic Orwellian newspeak from the White House. The first talking point denied inflation’s existence, the second claimed inflation was transitory and the third laughably asserted that inflation was good.
The current sleight of hand by the White House and their media sycophants simultaneously reverses the claim that inflation is good and shifts the blame to Russia. But the data tell a completely different story. Inflation — and its causes — predate the current international crisis.
The latest report from the Bureau of Economic Analysis shows inflation in January running at the highest rate since February 1982, according to the Federal Reserve’s (Fed) preferred inflation metric (personal consumption expenditures price index). At 6.1% from a year earlier, this rate is more than three times the Fed’s target of 2% and is making consumers patently poorer.
That same report shows real personal income fell in January by 0.6% from December. That may sound small but, at that rate, the real value of wages is slashed by half in less than a decade. Meanwhile, we are watching personal savings collapse in real time. The savings rate was 10.5% in July and fell to 6.4% in January, being cut nearly in half in just six months.
Combined with consumer credit data, it is clear that people are depleting their savings and taking on debt to try and combat the skyrocketing cost of living fueled by inflation. Especially troubling is the growing portion of borrowers that are subprime, meaning they are less likely to repay their debts on time. Elevated levels of subprime lending contributed heavily to the mortgage meltdown and Great Recession.
With so much data pointing in the wrong direction, the Federal Reserve Bank of Atlanta has lowered its forecast for first quarter real economic growth down to an anemic 0.6% annualized rate.
These ignominious trends have been accelerating for an entire year. There is nothing new or sudden about the extreme price increases for food, housing or energy. The producer price index, which measures wholesale inflation, hit nine record highs last year, and prices paid by businesses grew 9.8% in 2021. The consumer price index, which measures retail inflation, had the largest annual increase last year since 1982.
An entire year’s worth of data show that these price increases have been baked into the cake for some time. The idea that Russia’s recent actions have caused inflation here at home for the last 13 months is laughable at best. The Fed’s non-stop money creation has caused this calamity, and the White House’s regulatory mismanagement has added insult to injury.
Recent events in Ukraine do not explain the demonstrable fiscal and monetary malfeasance of this administration, but they do provide convenient political cover for a disastrous record on inflation. The Fed now has another excuse not to raise interest rates in a midterm election year, and the White House has a new scapegoat for inflation.
True to form, the White House’s response to Russia’s invasion of Ukraine laid the groundwork to blame any future price increase in energy on Russia and America’s own producers of reliable energy.
This latest iteration of newspeak conceals the fact that this administration has done everything in its power to hamstring domestic production and increase reliance on foreign oil, which is why America is now importing over 200 million barrels of Russian crude annually. After beating down American oil producers, the administration dares to chide them for not producing.
The weak sanctions imposed on Russia by the administration are also essentially a nonissue for energy markets since Russian oil and gas exports are exempt from any embargoes and all financial transactions related to energy purchases will continue unhindered through international clearinghouses.
With so many countries dependent on Russian energy, Putin has the West over a barrel of crude, and he knows it. This is the price of sacrificing American energy independence at the altar of ideology. Regardless, the recent developments in Eastern Europe will have relatively little domestic impact on the future of the general level of prices and could not have had any impact on past price increases.
It was Washington — not Moscow — that launched the attack on the American consumer called inflation.
E.J. Antoni is an economist at Texas Public Policy Foundation and a visiting fellow at the Committee to Unleash Prosperity.