Prices for consumer goods and services, excluding food and energy, shot up 0.9 percent in June, the Bureau of Labor Statistics (BLS) reported on Tuesday. This increase in the Core Consumer Price Index (CPI) far outpaced what economists expected. This ominous inflation warning sign suggests that President Joe Biden’s profligate government spending may usher in a new 1970s-style stagflation.
The CPI for all items rose 5.4 percent for the 12 months ending in June 2021, BLS reported. It has increased every month since January, when the 12-month change had been 1.4 percent. The index for all items minus food and energy rose 4.5 percent over the last 12 months, the largest 12-month increase since the period ending November 1991.
The energy index rose a whopping 24.5 percent over the last 12 months, and the food index increased 2.4 percent.
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Economists had predicted a 0.4 percent monthly CPI index, up from May’s monthly change of 0.7 percent. The 0.9 percent figure more than doubled expectations.
Used car prices increased 10.5 percent in June, month over month, compared to 7.3 percent in May and 10 percent in April. In annual terms, used car prices jumped a whopping 45.2 percent. By contrast, new vehicle prices grew 2 percent last month. While that seems a pittance compared to the used car price jump, it represented the largest one-month increase in 40 years.
While the Federal Reserve has downplayed the threat of inflation, economists at Deutsche Bank sounded the alarm, warning that Biden’s economic policies seem based on an irrational belief in a Goldilocks economy.
“The most basic laws of economics, the ones that have stood the test of time over a millennium, have not been suspended. An explosive growth in debt financed largely by central banks is likely to lead to higher inflation,” Deutsche Bank economists warned. “We worry that the painful lessons of an inflationary past are being ignored by central bankers, either because they really believe that this time is different, or they have bought into a new paradigm that low interest rates are here to stay, or they are protecting their institutions by not trying to hold back a political steam roller.”
The authors warned that “neglecting inflation leaves global economies sitting on a time bomb.” They noted similarities between the 1970s and today.
“Rising oil prices could compound any consumer-driven inflation. Indeed the price of oil has haunted the Fed before. A series of oil shocks contributed to the ratcheting up of inflation during the 1970s, but the Burns Fed chose to focus more on the CPI excluding oil. Then it excluded surging food prices and the idea of ‘core’ inflation took shape. Subsequently, more and more items were excluded. Eventually, however, the Fed recognised that all the supposed transitory sources of inflation had spread everywhere and double-digit inflation had leaked into the ‘core’,” the Deutsche Bank economists wrote.
While the Fed and many economists insist the inflation will be temporary, consumer expectations for inflation over the coming year reached the highest level ever, according to a survey the Federal Reserve Bank of New York released on Monday.
Meanwhile, unemployment remained at 5.9 percent in June. This persistent unemployment should not surprise Americans who are familiar with the Democrats’ $1.9 trillion blue pork bill masquerading as a “COVID-19 relief” stimulus. Only 8.6 percent of the funding went directly to combatting the pandemic, while hundreds of billions went to blue-state bailouts. The bill also sent $1,400 checks to individuals and extended the $400/week “enhanced” unemployment benefits.
Thanks to this “enhanced” unemployment, many workers make more money without a job than they did when they had one. Rather than reconsidering this perverse incentive not to work, Biden and his fellow Democrats further entrenched it.
Biden’s other policies would also make the economic situation worse. The president has called for Congress to spend trillions more in social programs that his tax plans cannot hope to fund. Essentially printing money decreases trust in the U.S. dollar and sparks inflation.
As PJ Media’s David Goldman wrote, “inflation is an insidious tax that robs the poor and the middle class. It favors the U.S. government, the world’s biggest debtor, because the government expects to pay back its creditors in Monopoly money. It crushes the real earnings of the vast majority of American households and destroys their savings. That’s what the Democratics are up to. And that’s what might bring them down–just as 12% inflation brought down Jimmy Carter in 1980.”
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Unfortunately, inflation will bring down the U.S. economy along with the Biden Democrats. America needs tighter economic policy in order to fight inflation. That may call for another Reagan-style revolution.
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