Not since mid-1982 have we seen inflation running this hot in the Consumer Price Index, and not since the late 1970s have we seen an administration less capable of grasping its sources and consequences. The Bureau of Labor Statistics reported that inflation hit 7% year-on-year, higher than the 6.8% annualized inflation rate from November. The news casts a lot more cold water on Joe Biden’s moribund spending plans in Build Back Better, but may do a lot more damage than that to his political standing:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis after rising 0.8 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.0 percent before seasonal adjustment.
Increases in the indexes for shelter and for used cars and trucks were the largest contributors to the seasonally adjusted all items increase. The food index also contributed, although it increased less than in recent months, rising 0.5 percent in December. The energy index declined in December, ending a long series of increases; it fell 0.4 percent as the indexes for gasoline and natural gas both decreased.
The index for all items less food and energy rose 0.6 percent in December following a 0.5-percent increase in November. This was the sixth time in the last 9 months it has increased at least 0.5 percent. Along with the indexes for shelter and for used cars and trucks, the indexes for household furnishings and operations, apparel, new vehicles, and medical care all increased in December. As in November, the indexes for motor vehicle insurance and recreation were among the few to decline over the month.
That’s the highest it’s been in nearly 40 years, and that was on the back end of an inflationary wave:
The BLS is reporting this is that 7% is the highest inflation since June 1982. Here's the updated chart with June highlighted pic.twitter.com/CORERItzlY
— Heather Long (@byHeatherLong) January 12, 2022
Those of us who were in the workforce in 1982 recall that year as an improvement in the inflation picture, or at least on the end slope of a years-long inflationary wave. The inflation reports over the last few months show that this is not “transitory,” nor is it indicative of growth. The December jobs report shows how little “growth” we have experienced in the American economy while inflation rips away at capital and savings.
The only upside is that fuel prices have dropped, but that may be more about demand than production. The Omicron wave has many more Americans isolating again as they either test positive or come into close contact with those who do, which means that fuel demand will drop for a short period of time. That upside, however, only adds to the downsides of higher prices in other areas, plus the certainty that inflation will hit fuel again when demand goes back up.
And it’s not as if those prices actually fell. It’s just that the rate of increase slowed:
Inflation hit 7% in December. Here are key price hikes:
Fuel oil 41
Used cars 37
Rental cars 36
Utility gas 24
New cars 12
Rent (OER) 3.8
— Heather Long (@byHeatherLong) January 12, 2022
Meanwhile, what about all of those wage gains that Biden and Democrats bragged about? The Associated Press says so long, suckers:
Rising prices have wiped out the healthy pay increases that many Americans have been receiving, making it harder for households, especially lower-income families, to afford basic expenses. Poll show that inflation has started displacing even the coronavirus as a public concern, making clear the political threat it poses to President Joe Biden and congressional Democrats.
That’s not the only political threat on the horizon. The last time the US saw an inflationary wave of this amplitude, the Federal Reserve under Paul Volcker had to raise interest rates far into double digits to tame it. That created a harsh recession — two, actually — and the Fed has become aware of the need for decisive intervention in this instance. Belatedly, but at least they’re awake now:
On Tuesday, Chair Jerome Powell told Congress that the Federal Reserve was prepared to accelerate the interest rate hikes it plans to begin this year if it deems it necessary to curb high inflation. Fed officials have estimated that they will raise their benchmark short-term rate, now pegged near zero, three times this year. Many economists envision as many as four Fed rate hikes in 2022.
Those rate increases would likely increase borrowing costs for home and auto purchases as well as for business loans, potentially slowing the economy. The rate hikes also mark a sharp reversal in policy by Fed policymakers, who as recently as September had been split over whether to raise rates even once this year. The Fed is also rapidly ending its monthly bond purchases, which were intended to lower longer-term interest rates to encourage borrowing and spending.
Needless to say, a Fed-initiated recession to tame inflation won’t be greeted warmly by the people who bought into Biden’s claims on inflation just six months ago:
📈 Inflation has SURGED to the highest level since 1982
❌ Biden, July 19th: “There’s nobody suggesting there’s unchecked inflation on the way – no serious economist.”
➡️ December was the THIRD consecutive month of inflation rising above 6%
American families pay the price!
— Chad Gilmartin (@ChadGilmartinCA) January 12, 2022
That was about the same time, perhaps even the same week, that Biden told people that no serious analyst thought a US withdrawal from Afghanistan would precipitate an immediate Taliban takeover. Biden’s definition of “serious” apparently entirely relates to agreement with his own opinion. Now, the Fed has to get actually serious, and that may well cause a recession right in the middle of a midterm cycle that already looks poised to punish Biden as it is.
This is the bigger issue for Biden, and it’s one that started in earnest shortly after both statements. Biden keeps either lying or demonstrating his complete lack of understanding on major issues, and that dishonesty/incompetency keeps translating into disasters. Afghanistan’s collapse led to the US abandoning Americans behind Taliban control. Biden’s spending spree in March led directly to the triggering of this inflationary wave, even if its root causes go back to the Obama administration. Biden promised repeatedly to deliver massive testing capacity in this pandemic, and yet this Omicron wave has caught his administration empty-handed despite having almost a full year to work on that issue.
Biden has trapped himself in a confidence-crisis cascade by repeatedly demonstrating his incompetency at this job. Issues like COVID policies and inflation hit American households on a daily basis, and every single one of these reports adds to the impression that Biden is in so far over his head that a rescuer would need a diving bell to find him. And rather than focus on fixing these issues with daily impacts on all American households, Biden’s off in Georgia slapping the podium over a Senate rule that he abided for more than 40 years just because it’s stopping radical legislation in the upper chamber — radical legislation that has nothing to do with the pain Americans feel on a daily basis.
In that, we have no modern parallel. Even Jimmy Carter was more self-aware and responsive in the late 1970s than Biden is now.