Weekly Opinion Editorial
TEN BITS IN 2022!
by Steve Fair
2021 ends this week. It has been quite a year. 425,000 American deaths were attributed to COVID-19, up 40,000 over 2020. The retail gasoline price in America is over $1.00 more per gallon than it was on January 1, 2021. Gas is higher than it has been since 2014. Food prices have risen more this year than they did in the past decade. Beef, pork, and chicken prices are respectively 26.2%, 19.2%, and 14.8% higher this year than last. The Food Price Index, which tracks global prices of agriculture commodities used in making food, rose 30% in the past year. The annual inflation rate in the U.S. rose +6.3% in 2021, the highest in 30 years.
For 35 years, retail chain Dollar Tree sold toys, home furnishings, kitchenware, holiday decorations, party supplies, books, food, and lots of other items for $1. But starting later this week, Dollar Tree will move to the $1.25 price point. Because of inflation, increases in cost of goods, labor, and freight, they can’t remain profitable selling stuff for a buck. So it’s now TEN bits! Many Americans don’t understand inflation, but Dollar Tree’s move will very graphically illustrate to them how economics work.
In three weeks, President Biden will mark his first year in office. Did the POTUS’s policies create the economic turmoil? Was is the pandemic or something else? Two observations:
First, Biden’s attack on the oil/gas industry did not immediately impact the price of gas. Clearly his administration’s energy policy is anti-fossil fuel, but his shut down of the Keystone pipeline didn’t result in instant price increases. His suspension of new oil and gas leasing and drilling permits for federal land did impact domestic production, which certainly didn’t help, but Biden deserves neither credit or blame for the current price at the pump. That is a supply/demand issue. Biden’s energy policies, if kept in place, will seriously damage the energy sector long after he has left office.
Second, Biden’s push for renewable energy and biofuel has impacted the price of food. Instead of putting corn related products into their belly, Americans are putting it in their gas tanks. Beef, chicken, and pork producers are paying more for feed, which impacts their prices. Food processors are paying more for corn related ingredients. And it’s not just corn flakes that are impacted. Products like shampoo, perfume, soda pop, yogurt, chewing gum, and even make-up all use ingredients related to corn. The price of corn is at an historical high because of demand due to the biofuel mandate. Biden needs to dial the mandate back.
When calculating rates of inflation, economists often remove food because food prices tend to be more volatile than prices of many other goods in the economy. Food is a necessity, and changes in the price of food immediately and directly affect households. Americans in the lowest 20% of household income spend 11% of their budget on food. The highest 20% household income earners spend 7% on food. When food prices go up as they have in 2021, it has a disproportionately negative impact on the poorest among us. The Biden administration claim the current price increases are transitory, but the pressure on food producers and processors is real and could result in many going out of business if they aren’t able to pass through the increases. That would be quite a transition!
2021 is in the books. Good riddance. The year has been a challenge. Hopefully 2022 will be a better year economically and physically for Americans. Happy New Year!