America has more bad inflation news. In June, the consumer price index (CPI) stood 9.1 percent higher than a year ago. That is worse than things were earlier this year, worse than in 2021, and worse than any time for some 40 years. The picture today makes a dark joke of the White House’s earlier claim that price pressures would be “transitory”—and still more embarrassing President Biden’s insistence that inflation was the fault of supply-chain interruptions or Vladimir Putin’s invasion of Ukraine or the greed of mom-and-pop gas station owners. Instead, the unfolding inflation picture makes it painfully clear that the price pressures have a fundamental and durable basis.
The latest report from the Labor Department is nothing short of terrifying. The worst news concerns those two essentials, food and fuel. Overall, food prices rose 1.0 percent in June and are 10.4 percent above year-ago levels. The prices of food at home stood 12.2 percent above year-ago levels. Energy prices overall rose 7.5 percent in June and stand 41.6 percent above where they were in June 2021—scarcely more than a year ago. Gasoline prices rose 11.2 percent in June alone and stand a whopping 60 percent higher than a year ago.
Intense inflationary pressures are also evident in other sectors, if not quite to the same degree as for food and fuel. The rest of the CPI, the so-called “core” rate of inflation, rose 0.7 percent in June. This group of commodities and services costs 5.9 percent more than it did a year ago. This looks moderate compared with food and energy, but it’s still far above the Federal Reserve’s 2.0 percent target for acceptable inflation, and the rate of increase clearly is gaining momentum. June’s rate of increase equaled 8.7 percent when calculated at an annual rate. Within this broad area, prices are up at unacceptable rates in every category. Services—including shelter, medical care, and transportation—already up 5.5 percent from year-ago levels, also rose at an 8.7 percent annual rate in June.
The pain caused by these price pressures is evident in the Labor Department’s recently reported wage data. Hourly and weekly earnings, though each rose 0.3 percent in nominal terms during June (3.7 percent when stated annually), still trailed the rise in living costs by a wide margin. In real terms, hourly and weekly earnings each fell 1.0 percent in June, a troubling 12.7 percent when stated annually. Compared with year-ago figures, real hourly earnings are down 3.6 percent and real weekly earnings are down by fully 4.4 percent, and the pace of decline is clearly accelerating.
All these measures suggest beyond cavil that the inflation problem goes far deeper than the White House’s casual array of excuses. What is more, those fundamental causes are clear in policy mistakes going back over a decade. They began with the financial crisis of 2008–09. To counter that disaster, the Fed poured new money into financial markets by keeping interest rates near zero and buying bonds directly, mostly from the Treasury, in what the Fed refers to as “quantitative easing.” The federal government ran huge deficits to help relieve the great recession that followed that crisis. Under the circumstances, there was little else that policymakers could do, but they unwisely persisted in these policies even as the economy and its financial markets began to recover in 2009. And, to a greater or lesser extent, they continued in this direction for all the years that followed—through the end of Barack Obama’s presidency, and Donald Trump’s, and now into Biden’s. In just the past few years, the Fed has purchased almost $5 trillion in new government debt, effectively engaging in the digital equivalent of financing government through the printing press, a classic prescription for inflation.
Because unwinding so many years of bad policy cannot occur quickly or easily, inflation will likely remain a threat for some time to come. For the sake of honesty, public confidence, and the country’s long-term prosperity, Washington would do well at this point to acknowledge the mistakes of the past and commit to robust counter-inflationary policies—aggressive monetary restraint and fiscal discipline to reduce budget deficits. Fed Chairman Jerome Powell, though he has admitted no error on anyone’s part, seems to have begun such an effort. President Biden, however, seems unable to change and continues to blame inflation on everything but its real cause. His behavior has already lost him much credibility with the business community and with the public generally.
In some respects, it should be easy for the president to admit reality. He is not responsible, after all, for the mistakes of the last two presidents, Obama and Trump, or those of the last Fed chairs, Bernanke, Yellen, and Powell earlier in his tenure. Biden’s reluctance to concede error, however, may reflect the realization that he is not entirely blameless, either, since he did press two huge and highly questionable spending initiatives last year, even as inflation became evident. And he is still pushing his even more expensive Build Back Better scheme. Still, if Chairman Powell can turn the page on past mistakes, it would surely not ask too much for the White House to do the same.