by Brian Balfour
Senior Vice President of Research, John Locke Foundation
This morning saw the release of inflation numbers for April, and – while down slightly from March – prices continue to rise at historic levels.
Overall CPI for April came in at an annualized 8.3% rate, down slightly from the 8.5% from March, but still at levels not seen in about 40 years.
Overall food prices rose at an annualized rate of 9.4%, the highest such rise since 1981. The more specific “food at home” category – meaning groceries – rose at a 10.8% annualized rate. Double-digit price hikes at the grocery store are particularly devastating on low- and middle-class households.
Double-digit price hikes at the grocery store are particularly devastating on low- and middle-class households.
And it’s not just gas and groceries driving the increased cost of living. The “core” price index, which removes energy and food, rose at an annualized 6.2%, the highest rate in 40 years.
Anticipating the negative inflation report, yesterday President Joe Biden gave a speech addressing the topic. Unsurprisingly, he once again failed to inspire confidence that he understands the cause or the solution to runaway inflation.
Continuing to blame “the pandemic” and “Putin’s price hike,” Biden ignored the massive money printing made necessary by historic deficit spending over the past couple of years. To his credit, Biden did acknowledge that the Federal Reserve “plays a primary role in fighting inflation in our country.” But it’s the Fed that caused inflation in the first place. Why would we trust the arsonist to put out the fire?
Moreover, the primary means that the Fed has to tame inflation is to raise interest rates and reduce the money supply. But doing so threatens to prick the economic bubble that has become addicted to cheap credit. Recent stock market dives and early indicators of a slowdown in the overheated real estate bubble suggest even modest interest rate hikes threaten to implode the economy.
Moreover, Biden’s legislative proposals to rein in inflation are absurd. Raising taxes on corporations and threatening to punish arbitrary “price gouging” will discourage productive investment, thus reducing output and pushing prices up still further.
On the campaign trail, Biden promised that no one making under $400,000 would see a tax increase under his administration. But poor and middle-class households are getting hammered by the inflation tax, and the only way to stop the inflation would raise interest rates and crash the economy.
The ruling class thought they could shut down large swaths of the economy, and then simply spend enough money to try to avoid the financial pain. But their massive Covid “relief” programs just kicked the can down the road. The day of reckoning is upon us, and it’s getting ugly.