Nate Jackson / August 10, 2022

Five Reasons Inflation Is Still Bad News

The annual rate dropped from 9.1% to 8.5%, which does not alleviate the serious economic challenges ahead.

Great news, everyone: The Consumer Price Index (CPI) eased a bit in July and rose by “only” 8.5%, down from a scorching 9.1% in June. All it took was for the Senate to pass the Inflation Reduction Act. It hasn’t even passed the House and it doesn’t have Joe Biden’s signature. And we’re saved.

So, yeah, why doesn’t that feel like great news? Here are five reasons why:

First of all, the Inflation Reduction Act is one of the most deceptively named pieces of legislation in recent memory. Even economists who favor the Chuck Schumer-Joe Manchin compromise don’t think spending $740 billion on healthcare and the Green New Deal-lite will do much to reduce inflation, and only in a few years at that. Economists who know what they’re talking about realize the Democrats’ boondoggle will exacerbate inflation after Joe Biden’s American Rescue Plan lit the fire in Spring 2021.

Second, the primary reason that inflation was flat between June and July and down a bit year over year is that gas prices dropped 7.7% from June’s record highs and energy overall stabilized, while prices for used cars also fell. Those decreases offset the continued climb of other key items such as groceries, which are up 13.1% from a year ago. Overall, energy is still up 32% since last July. And though Joe Biden has made a sport of boasting about gas prices falling about $1 per gallon in recent weeks, it’s small comfort to be paying $1.62 (about 68%) more today than we did the day he took office.

Other signs indicate high inflation will be with us for some time yet. “There’s a breadth of inflation in that housing inflation and service-sector inflation remain elevated,” said economist Greg Daco, “and those tend to be stickier than goods, which can and will start to reverse.” Core CPI, which excludes volatile food and energy, remains high at 5.9% and rose 0.3% on a monthly basis.

Third, inflation might have slowed a bit in July because of massive interest hikes by the Federal Reserve (with more probably on the way) and two straight quarters of negative GDP growth, which is the long-held definition of recession. Recession plus inflation equals stagflation. Everyone wants inflation back down below 2%, but the path to get there will be economic pain of other kinds.

Fourth, though July’s jobs report exceeded expectations at a healthy 528,000 jobs added, wages aren’t keeping up. Thanks to Bidenflation, workers have had an effective 3.3% pay cut via the tax of higher prices. On top of that, according to the Department of Labor, productivity fell 2.5% compared to a year ago, the biggest decline on record. Reduced purchasing power will slow demand, which will lower prices if goods can keep up. Hooray?

Fifth, Joe Biden isn’t even halfway through his first term. Including the president, key players in his administration have virtually no private sector experience, and they are neither capable nor desirous of righting the ship. To Democrats, there are only ever two economic buttons to push: more government spending and tighter government control.

In short, as much as we hate to play the role of Debbie Downer, there’s an awful lot of dark cloud in the CPI silver lining.


Addendum: “It’s so bad out here that Mr. Biden broke the Misery Index, the economic indicator that has been used since 1948 to measure how miserable people are in any given country,” writes Charles Hurt. “It calculates a combination of the unemployment rate and inflation data.”

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