The latest monthly inflation numbers were a gut punch. Families, especially those at the economic margins, must brace for continued struggles to make ends meet as groceries and housing costs quickly consume more of their earnings. Wall Street tanked, posting its worst one-day loss in more than two years. That was bad news for Americans nearing retirement.
The 8.3% hike in prices in August compared to one year ago was certainly a blow to the White House’s hopes that the worst might be over and a gift to Republicans ahead of the md-term elections, less than two months away. From a policy perspective, however, the latest data indicate it is going to be tough to get the upper hand in the battle against inflation. Partisan political responses are likely going to be weak weapons in this fight.
This much is clear. Starting with the beginning of the COVID pandemic, Washington spent over $5 trillion in various relief packages. Some of this spending was absolutely essential to assist households and businesses reeling from lockdown mandates.
But the spending spree had to end eventually. Coming out of the pandemic there were too many dollars chasing too few goods. That leads to inflation. As early as last spring, former Treasury Secretary Larry Summersand other economists and a few lonely voices in the Democratic party, including Senator Joe Manchin, warned it would be wise to tap the breaks on additional government stimulus into the economy.
They turned out to be right.
To be sure, continuing supply chain disruptions caused by COVID’s persistent presence, notably in China, plus the war in Ukraine have introduced new economic uncertainties and fueled inflation in the U.S. and other countries. In addition, Federal Reserve Chairman Powell admitted back in May that the Fed could have acted earlier.
But other countries are dealing with many of the same COVID-induced and geopolitical challenges, without facing inflation as highas that in the U.S., which strongly suggests Washington’s spending is a major part of rising prices here at home
Going forward, U.S. policymakers and elected officials must take a flinty-eyed look at the facts and come up with plans to help American workers struggling with soaring food costs instead of cherry-picking facts about the causes of and solutions to inflation to bolster their electoral prospects. They need to turn inward, face each other, listen, and compromise to ensure the U.S. can get its finances in order and slow the price hikes that are crushing so many families.
