On Inflation Front and Center
Like a Sesame Street episode, the word of the day is INFLATION. The cost of food, gas and goods has been rising as the economy recovers from its pandemic woes. The White House, embroiled in an internal Democratic Party fight over long-term human infrastructure issues, left its flank open on immediate economic concerns. They got the wake-up call in the Virginia and New Jersey election results. They got a hammer blow from just-released reports that show inflation at the highest level since 1990. Like a fighter who just got sucker punched, the Administration and Democrats are groggily trying to get back up on their feet.

For a while, the shortages and rising prices were small enough and slow enough to be countered by an improving economy and rising wages. But the American people have limited patience. Particularly when the cost increases are rapid and large enough to be noticed week by week.

Ironically, a public that has been buying into the conservative mantra that “the best government is no government”, is demanding the government put a stop to inflation. The Republicans justify this demand by claiming that the current Administration’s policies have created this inflationary situation and therefore are responsible for it. “Moderate” Democrats, like Joe Biden are happy to adopt this approach to help stop the reconciliation bill their donors don’t like, from passage. Nothing surprising in this political jockeying.

The problem is that government didn’t create the inflationary situation and has limited tools to combat it. Build Back Better legislation actually will help deflate the economy. But that will take time. The solutions lie in a number of directions. Oil producers have continued to limit production, keeping supplies short and gas prices rising. Clogged ports will take time to clear the backlog of unloaded ships. The supply of auto computer chips is slowly coming back into balance. Housing prices won’t drop until the pent-up demand gets sated. Workers will continue to use their new-found leverage to increase wages, change jobs and condition their return to the workforce. None of these issues were the result of any legislation or policies that the Administration has passed. But they’re the ones at the wheel, so its their baby to deal with.

The truth is that curbing inflation won’t be an overnight event. The second truth is that while government may help some of the root causes of the current rise in inflation, much of it is an economy struggling to accommodate a rapid reversal in consumption and spending. Like that mouse being eaten by a snake, digestion takes time. We will see the Administration now react. The Fed can play with interest rates. The Administration can both open the nation’s strategic oil reserves and jawbone oil companies to up production. More can be done to speed the clearance of the Ports. Now that inflation has hit the Administration upside the head, we will see a flurry of actions on all possible fronts.

“The Hill” yesterday, noted that there are some positive signs that the inflationary pressures are easing. The backlog of unloaded ships has dropped by 27,000 in the last week alone, shipping costs have dropped by 50% from last month and auto companies report their production is no longer curtailed by chip shortages. It will take some time for these positive signs to show up in prices. As with all things political, timing is everything. To avoid a voter backlash in the 2022 mid-terms, inflation will not only have to be curbed, but the public has to be satisfied that its under control when voting day approaches. If that happens, we can be sure that there will be another “word of the day” as powerful forces seek to control and benefit from our acts as the voting public.

ihg 11-11-2021

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