The producer price index has reached a new record of 11.2%, and detractors fear President Joe Biden’s fiscal agenda could make things worse.
Producer prices increased a scorching 11.2% for the year ending in March, according to a report Wednesday from the Bureau of Labor Statistics, with the inflation rate up 1.4% from just the previous month. Inflation fears were raised when the White House backed the $1.9 trillion American Rescue Plan spending bill one year ago, with critics now claiming vindication.
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“This runaway inflation is a direct result of President Biden and congressional Democrats’ reckless spending that has devalued the dollar,” said Alfredo Ortiz, president of the conservative advocacy group Job Creators Network. “Russia is merely a scapegoat. Small businesses must support candidates this November who promise to rein in spending and inflation.”
Some economists warned that the spending bill would overheat the economy, which was already in a highly stimulative environment thanks to near-zero interest rates and two previous pandemic-related stimulus measures during the previous administration.
Secretary of the Treasury Janet Yellen said last May that the Federal Reserve may need to raise interest rates to prevent the economy from overheating. But the rate was not raised until last month, and even then by only 25 basis points, or one-quarter of 1%.
The White House has pursued other policies that lead to higher consumption, such as extending the student loan “pause,” which will lead some with college debt to spend their money on goods rather than on repaying their loans. The administration continues to push programs from the failed Build Back Better bill, such as subsidized childcare and universal pre-K, that also involve high new levels of government spending.
“We know that big, big costs — our childcare, healthcare, eldercare — these are all areas where the president has proposed a plan to reduce costs, and certainly it’s a reminder of the importance of moving forward with that,” White House press secretary Jen Psaki said Tuesday.
Worries over the inflationary impact contributed to the bill’s death at the hands of West Virginia Sen. Joe Manchin, a centrist Democrat, last December.
Nonetheless, liberals still hold that the measures can eventually lower inflation by boosting production.
“The policies President Biden wants to implement would lower the costs that customers face for healthcare, childcare, energy, and transportation,” Center for American Progress senior fellow David Madland said in March. “These policies will directly reduce costs for customers. Further, over the long run, this type of spending that increases the productive capacity of the economy, especially if it is paid for, should reduce inflation.”
Madland has argued that even if the spending isn’t paid for with additional tax increases, the costs consumers pay will still be lower via government subsidies.
“The direct impact of the policy would more than make up for any indirect and modest inflationary impact,” he added.
Biden has played up positive aspects of the economy, such as low unemployment and gross domestic product growth, yet that may be cold comfort for middle- and low-income consumers with no choice but to pay more for groceries and gas.
Average weekly grocery spending is now at $148 per week, a big leap from the average pre-pandemic amount of $113.50, according to data from FMI, the Food Industry Association. Beef is up 16% year over year, while a gallon of milk has risen from an average price of $3.59 to $4.02. Gas prices have risen from $2.31 per gallon when Biden took office to $3.44 in November and about $4.11 on average today.
The Fed is now seen as likely to pursue a more aggressive 50-basis-point interest rate hike in May. But such a move comes with its own risks.
“What started as an inflation outbreak related to the pandemic and supply chain shortages has turned into a nightmarish cost-of-living crisis with no way out but for the Fed to engender a sharp cutback in consumer demand, which is a polite way of saying economic downturn or recession,” Fwdbonds’s chief economist, Christopher Rupkey, previously told the Washington Examiner.
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Biden is hoping for inflation to ease largely on its own ahead of November while engaging in modest moves such as allowing E15 fuel that can save consumers 10 cents per gallon and tapping the Strategic Petroleum Reserve. But the failure of the big-budget Build Back Better agenda may prove to be a blessing in disguise as inflation continues its upward spiral.
“The Federal Reserve and other outside economists continue to be that inflation will moderate by year-end,” said Psaki. “But we are not going to wait for that. And that is one of the reasons that the president is going to continue to take steps.”
