Here’s the truth about rising inflation — and it has nothing to do with spending
Inflation numbers for December indicate rising prices continue to be a major problem. The Personal Consumption Index, which the Fed uses to gauge inflation, was up 5.8 percent for the year that ended in December, a slight increase from 5.7 percent in November.
That’s the fastest price increase in 40 years. Wages and salaries in the fourth quarter increased 4.5 percent, which is robust — but not enough to keep up with inflation.
Republicans have responded to rising inflation by calling for a reduction in spending. They’ve been joined by conservative Democrats like West Virginia Senator Joe Manchin. All of them argue that government efforts to fight the pandemic have flooded the economy with dollars, and that this has caused price increases.
The more likely cause of inflation is the pandemic itself. Curtailing government efforts to battle covid are just going to make inflation worse.
Prices go up when there is more demand than supply. Covid has created enormous blockages in the global supply chain. Production fell sharply in many industries during the pandemic as lockdowns and fears of contagion closed workplaces. Semiconductor production has been slow to rebound, which has boosted car prices. Oil production was also hit hard. The Bureau of Labor statistics reports that about half of total inflation is the result of increases in gas and automotive prices.
Food and grocery prices have been hit hard by inflation for many of the same reasons. It’s hard to produce a steady supply of anything during a massive pandemic when workers are falling sick or have to stay home to care for sick family members.
In one week in January, US pork production dropped 8 percent because of staffing shortages. Distributors have cut orders to some grocery stores by 20 to 40 percent. Shortages mean there is less supply, less supply means higher prices.
If inflation was caused by US policy choices, you’d expect it to be confined to the US. But supply chain issues are global. So are rising prices.
Inflation in the EU rose to a record 5.1 percent in January. Inflation in the UK hit a 30-year high. China has done better in keeping inflation under control — and, not coincidentally, it has also put in place strong lockdown policies which have (at least so far) largely prevented the out-of-control omicron spread in other areas of the world.
The Fed is likely to raise interest rates throughout the year to try to control inflation. But if the major cause of inflation is the pandemic, the solution at some point has to be ending the pandemic, or at least bringing it under control.
Many experts hope that omicron will burn itself out in the next weeks. At that point so many people will have been infected that the general level of immunity in the population will be boosted, and we can hope for a less plague-blighted 2022.
If that’s the case, supply-chain issues should resolve themselves, and inflation should come under control on its own.
The problem with the future, though, is that it’s difficult to predict.
As we’ve seen, new variants can present new, unexpected, and devastating challenges. People who have had covid do not have perfect immunity to reinfection. What immunity they have can fade over time.
Omicron may linger longer than experts anticipate. New waves could hit. The uncertainty in itself can create production shortfalls as producers and workers hedge their bets against possible crises.
If we want to defeat inflation, long term, during covid, there’s no substitute for a robust public health response.
The Biden Administration has slowly started to mail free covid tests through dedicated website orders. It plans to buy and distribute 1 billion rapid tests by mid-February.
That effort needs to continue and expand, even if covid temporarily dies down. In the middle of an ongoing pandemic, everyone should have as close-to-instant access to free testing as possible, all the time.
The same goes for masks.
Biden is distributing 400 million N95 masks, but that should be the beginning. High quality masks should be available for free in every school, grocery store and library in the country, at the very least.
Biden needs to do better in encouraging vaccine uptake as well, especially as more boosters become available and necessary. Right now only 41.8 percent of the population has received booster shots, according to the CDC. Omicron showed just how inadequate that is.
It’s true that there are hard-core partisan rightwing anti-vaxxers who will always refuse vaccines (and masks and testing for that matter.)
But they are outnumbered by people who are willing to get the vaccines, but are unsure how to navigate appointment websites, or can’t get time off work, or can’t get transportation, or aren’t aware that the vaccines are free (an understandable confusion given our generally unaffordable health care system).
Mandating paid time off for people who need to get vaccines, or even paying them directly, could help. So could more vaccines at places like libraries, where people expect to receive free services.
Ongoing, expanded vaccination, mask and testing campaigns all cost money. They all also would be greatly helped by bipartisan buy-in.
Unfortunately, Republicans and even many centrist pundits have turned against even mild pandemic abatement measures, like temporary remote learning at the height of the pandemic. Many seem to believe that if they shout “back to normal!” loud enough, normality will pour across the land.
That’s not how anything works.
If we don’t defeat covid, we can’t get back to normal. Defeating covid requires investing in public health. If the Republicans get their way, though, we will spend nothing and make no effort to mitigate covid.
That means we will continue to have major, dangerous pandemic outbreaks, workers will become sick, production will stall and inflation will remain a live and volatile problem.
The politics here are difficult, to say the least.
We need to spend more to fight the pandemic and reduce inflation, but inflation gives reactionaries an excuse to fight all spending.
Biden has no choice though. If Democrats don’t get inflation under control, they face major losses in 2022 and 2024. Defeating covid is a moral, economic and electoral imperative.
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