by Mitch Kokai
Senior Political Analyst, John Locke Foundation
There’s no way to spin it: Wednesday’s inflation report is bad news for the country economically and for the president politically. The year-over-year overall increase was 6.2 percent, the highest rate in over 30 years. It wasn’t from any particular category of expenditure, either. According to the Bureau of Labor Statistics, the increase was “broad-based,” with significant increases in energy, food, and shelter.
The standout category in this month’s report was energy, which rose 30 percent overall since last year and — incredibly — 4.8 percent in just the last month. More specifically, gasoline was up 6.1 percent since last month and natural gas, used to heat homes, was up 6.6 percent. Energy is an input into everything else, and higher energy prices mean higher prices throughout the economy.
If you’re in the White House, this is the kind of report that you have nightmares about. The inflation rate had seemed to plateau in the last three monthly reports. From the administration’s point of view, it was time for it to turn the corner and start coming back down. It did turn the corner this month — but it’s going back up, and it’s in more categories than before.
The sort of inflation we are currently experiencing is different from notable examples in the past. Then the inflation was almost entirely generated by the central bank, which merely had to correct itself. The Federal Reserve should taper its asset purchases, but it cannot do much to solve today’s problems. Given the historic level of federal debt, the Fed doesn’t have much room to raise rates without significantly increasing government interest costs. Furthermore, altering the money supply or raising interest rates will not cause the Ports of Los Angeles and Long Beach to work more efficiently. It will not create more trucks and truck drivers. It will not make it easier to produce and transport energy.