Inflation continues to rise, pummeling consumers and raising serious concerns over the big spending agenda of President Joe Biden.
Personal consumption expenditures, a measure of changes in the prices paid by consumers for goods and services, increased 0.3% since last month and 4.4% since last year, the highest annual increase since 1991.
This is driven by at least a few factors. During the pandemic, consumers saved a record amount of money (2020 nearly doubled the rate of the previous high) and now they are spending with pent-up demand. Meanwhile, supply chain issues have created a scarcity of products.
Furthermore, compensation costs to businesses increased last year at the fastest rate since 2004, which on its face sounds great: higher compensation costs for businesses means higher compensation for employees.
But all of these factors are driving prices higher, and higher prices lead to employees asking for raises to meet the cost of living, which leads to employers giving more money, which leads to higher prices. And so on.
The massive cash infusions Congress gave earlier in the pandemic have also driven inflation, as predicted, especially as many people who did not need the money received it anyway.
With supply chain issues persisting and congressional Democrats set to pass another massive spending bill, inflation fears are also on the rise.
The Biden administration has tried to tamp down those fears, arguing inflation will come down in the second half of next year, while pushing a letter from some economists that the massive spending package Democrats are considering will ease inflation by building out “long-term economic capacity.”
We remain skeptical. So are the American people. A recent NBC News poll found that seven in 10 American adults, including nearly half of Democrats, think the nation is headed in the wrong direction, with most Americans viewing Biden’s handling of the economy negatively.
With inflation still rising, artificially pumping trillions of dollars into the economy could make the problem worse. We urge Congress to take a more measured approach. This is a time for fiscal discipline, not more profligacy.
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