Premium

Yellen concedes: Nothing transitory about inflation after all

So much for the Biden administration’s favorite talking point about inflation — and maybe for a couple of others as well. With inflation not just persisting but also amplifying over the last few months, Treasury Secretary Janet Yellen finally conceded that there’s nothing “transitory” about it:

Yellen tried to spin this as being too misunderstood to be useful:

“I’m ready to retire the word transitory. I can agree that that hasn’t been an apt description of what we’re dealing with,” Yellen said.

Powell told lawmakers this week the word meant different things to different people, sowing some confusion, and it was a good time to explain more clearly what was meant.

If confusion emerged over the term, Yellen should blame her boss and his team. The Fed’s Jerome Powell meant it in terms of the transition between pandemic shutdowns and the return to normal flow of goods and services. That transition has been complicated by easily predictable supply-chain issues which the Biden administration ignored entirely until two months ago, so the “transitory” period has been a lot longer than it might have needed to be. However, Joe Biden and the White House pounced on the word “transitory” to mean something more like ephemeral, and insisted that it wouldn’t last more than a couple of months.

The problem now isn’t just that it’s linked to the supply chain and that Biden’s bungling that crisis, although that’s a major component of it. One of the major driving forces of inflation at the moment is the massive monetary dump in March with Biden’s third COVID-19 stimulus, a package that economists like Larry Summers expressly warned would create an inflationary wave. Yellen still insists that the only way out of the monetary-policy fumble is the hair of the dog:

Yellen insisted that stimulus spending by the Biden administration early this year was not the major driver boosting consumer prices, which hit 31-year highs in October and are running at more than twice the Fed’s flexible inflation target of 2% annually. She blamed the surging prices mainly on supply chain issues and a mismatch between supply and demand.

Ahem. What did this administration do about supply chain logistics in preparation for, or at least in parallel to, the March stimulus? Nada. And what does Yellen think caused the “mismatch between supply and demand” anyway? Could it have been the massive helicopter-drop of money on consumers in March and April at the same time that snarled supply chain logistics were being ignored by Biden and Pete Buttigieg? If so, then pursuing yet even more big-spending bills like Biden’s Build Back Better is more likely to pour gasoline on inflation’s fire than flame retardant.

Why is Yellen even conceding this much? Economic reality as well as political reality, obviously. Gallup gives us a good look at who’s getting burned by inflation, and it ain’t the rich. Forty-five percent of American households now claim that inflation is causing serious hardship, and the effect is highly and predictably regressive:

Lower-income households are most likely to have experienced financial hardship due to price increases. Seventy-one percent of those living in households making less than $40,000 a year say that recent price hikes have caused their family financial hardship. That compares with 47% of those in middle-income households and 29% in upper-income households.

Moreover, 28% of lower-income Americans describe the hardship they are experiencing as severe and affecting their ability to maintain their current standard of living.

While the majority of U.S. adults without a college degree (54%) describe price increases as causing financial hardship for themselves or their family, 30% of those with a college degree say they have experienced the same.

Of course that would be the case. Inflation erodes buying power; those who have the least buying power get impacted the hardest by that erosion. Inflation is in essence a regressive tax, all the more so when it results from monetary policies that deliberately stoke inflation in exchange for other short-term gains. The education difference is almost certainly tied to the income differential between college and non-college graduate Americans, not a perception difference.

That has a political effect too, but not in the way Democrats can dismiss:

There are modest differences in inflation-related hardship along partisan lines, with Democrats (37%) less likely than Republicans (53%) or independents (49%) to say they have experienced it. However, similar percentages of Democrats (8%), Republicans (11%) and independents (11%) say they are facing severe financial hardship because of higher prices.

It’s also having a regressive impact on rents, an issue that will undermine Democrats among their urban-core voter base, the Washington Post reports:

Prices jumped more than 6 percent in October, according to the Bureau of Labor Statistics (BLS), the largest annual increase in about 30 years. As a result, Americans are spending more on necessities, from groceries to fuel to housing.

The nation’s median rent swelled 17.8 percent from January to November, according to the Apartment List’s National Rent Report. The median sales price of a single-family home hit $353,900 in October, according to the National Association of Realtors, up more than 13 percent year over year. Beef prices are up 20 percent in the same period, according to the BLS, and the cost of a carton of eggs has risen nearly 30 percent. On Thursday, the national average for a gallon of gas was $3.37, according to AAA, compared with $2.15 a year ago.

Some of that is tied to the supply-chain crisis, and solving that might ease the rate of inflation. However, the restoration of normal supply chain movement could take several more months, if not a year or more to accomplish. Inflation has already outstripped the artificial wage gains over the past year; if this goes on into summer, the economic setback for low-income and fixed-income households will be catastrophic. And it will not be transitory by any means.