INFLATION DENIAL
Biden officials are dismissing suggestions that the United States will likely see a burst of inflation later this year. Don’t believe them.
The signs of looming inflation are all around us. Copper futures are now at a record high, joining many other industrial metals such as steel and aluminum that have also seen prices spike in recent months. These price hikes will soon drive up the cost of items that use these materials.
Lumber prices are at record highs, too, a development that will push up home prices. House prices have already been skyrocketing, up by an annual 17.2% in March and likely to go up further as fewer people are putting their houses on the market.
The historically volatile food and energy sectors are also on the price upswing, with oil prices already at or above their pre-pandemic levels and food prices likely to keep rising.
This might seem strange, since unemployment remains above 6%, with more than 8 million fewer jobs in the United States than there were before the pandemic. Inflation, however, is a monetary phenomenon, not an employment-based one. The fact is that the economy is awash in money, thanks to the trillions of dollars in pandemic-related relief in the past year.
U.S. personal income hit a record high in March, fueled by the latest round of COVID-19 relief checks. Income was up a whopping 21.1%, the largest increase on record. This has fueled higher levels of consumer spending, too, despite the continued controls on much of the service sector.
U.S. consumers spent $15.4 trillion in March, more than $500 billion more than in February 2020, the last pre-pandemic month. Despite this record spending, the personal savings rate still hit 27.6%, a rate surpassed only by that of last April, when Americans received their first round of stimulus checks. They are spending more than ever and are still sitting on trillions of dollars in saved government relief checks.
That money has to go somewhere, and it can’t all be spent on vacations and trips to newly reopened restaurants and movie theaters. A lot of it will go to higher prices for things people want to buy now — in other words, inflation.
This is true even before the rest of President Joe Biden’s $1.9 trillion relief plan is spent in the coming months. And that doesn’t begin to consider the potential inflationary
effects of Biden’s proposed additional $4 trillion in spending.
Treasury Secretary Janet Yellen seems to realize this. She came under fire last week when she said the Federal Reserve could easily control inflationary outbreaks with interest rate hikes, a statement that reassured financial markets but ran counter to the administration’s official policy of denying inflation was likely to ensue in any event. She tried to walk back those comments later in the day, but it appears she simply committed the sin most frowned upon in official Washington, D.C.: telling the truth.
People in the market to buy a house see skyrocketing prices; they will experience that inflation even if the government doesn’t acknowledge it. Americans bought a total of six million homes in 2019, a number expected to increase this year. Voters who just went through bidding wars are not likely to believe inflation isn’t real.
Americans have to be in their late 50s to have lived as an adult through double-digit inflation; the CPI hasn’t been above 4% consistently since the late 1980s. This generation looks like it’s going to have its own rendezvous with inflation destiny soon. It won’t relish the experience.