Biden loses the inflation blame game
There’s no inflation, and if there is inflation it’s temporary and it’s the fault of greedy oil companies or the fault of Vladimir Putin. The Biden Administration’s messaging on the worst inflation in forty years has morphed so many times that the president’s top officials can’t keep up with it.
On June 9, Treasury Secretary Janet Yellen brusquely denied that corporate price-gouging had anything to do with the problem, stating, “Demand and supply is largely driving inflation.”A day later, Biden blamed inflation on greedy foreign shipping companies, US pharmaceutical companies and Exxon-Mobil, and the US oil industry in general.
On April 14, Biden offered this startling claim:
“What people don’t know is that 70% of the increase in inflation was
the consequence of Putin’s price hike because of the impact on oil
prices. Seventy percent.” This drew a laugh from the fact checkers at
the Washington Post, a pro-Biden newspaper.
Virtually all of the increase in fuel and food prices occurred before Russia invaded Ukraine last Feb. 24. The price increase that ensued from the Ukraine War, to be sure, had nothing to do with Putin’s actions—Russia did not cut oil or food production—but rather from sanctions that made Russian oil harder to sell. Some increase in grain prices can be blamed on the inability of Ukraine to transport its harvest.
Where inflation is concerned, the elephant in the parlor is the explosion of federal spending to about 30% of Gross Domestic Product, compared with a range of 18% to 23% during the preceding fifty years.
The jump in spending, to be sure, began under the Trump Administration, which spent about half of the $6 trillion in total federal stimulus. But the Trump administration undertook the stimulus program in the Spring of 2020, when the economy was paralyzed by Covid-19.
The Biden Administration continued pumping money into the economy at the same rate even after the pandemic subsided and the economy recovered, offering massive handouts to its political constituencies.
There is a difference between injecting adrenaline into a patient whose heart has stopped, and injecting the same dose again after the patient is revived and ambulatory. The massive demand shock, unprecedented in the peacetime history of the United States, ran into chronic supply constraints and produced a killer inflation wave.
The chart below shows the year-on-year change of major components of the US Consumer Price Index, as well as one item that doesn’t appear in the CPI, namely the Apartmentlist.com estimate of changes in residential rents. This is included because the “Shelter” component of CPI seems to be a wild underestimate inconsistent with private survey data that shows rent inflation of 16%.
It’s clear from the chart that inflation had reached its full momentum by the end of 2021. Car demand rose during Covid as Americans avoided public transport, but the automobile industry ran into a critical shortage of computer chips and other components.
Energy price inflation had climbed to more than 30% a year by the Spring of 2021. Goods inflation for both durables and nondurables ran between 10% and 20% during the last months of 2021.
The only item that showed an acceleration in price change during 2022 was food. Energy inflation was in full swing before the Ukraine war, because domestic US oil production never recovered to its pre-COVID peak in early 2020.
The Biden Administration’s hostility to fossil fuel exploitation, a concession to the Democratic Party’s progressive wing, created a hostile environment for the oil and gas industry and discouraged capital-raising.
To add insult to injury, the sanctions that the United States, Europe, and Japan imposed on Russia split the oil market into two tiers. China and India, which refused to participate in the sanctions, are buying enormous amounts of Russian crude oil at discounts of 30% or more.
According to Rystad Energy Research, Asian imports of Russian oil rose by 347% during March to May compared to the same period in 2021. Indian imports of Russian crude, the research firm reported, have risen almost 7-fold, making Russia a bigger supplier to India than Saudi Arabia.
Meanwhile American and European consumers are paying the highest oil prices in history, except for a brief spike during the 2008 financial crash.