Absorbing price increases can't happen in a healthy economy!

 Weekly Opinion Editorial

SPONGES!

by Steve Fair

     The Consumer Price Index (CPI) is the measure of the average change over time in the prices paid by consumers for consumer goods and services.  In June, the CPI rose 1.3% for the month.  The CPI is up +9.1% in the last 12 months.  That is the highest growth rate since November 1981. Food prices at the shelf have risen even more: +10.4% in the past 52 weeks.  Gas prices are up a whopping +41.6% the past year.

     Inflation has hit hard at the wholesale level as well.  Prices for food processors and producers surged to near record level from a year ago; +11.3%.  Translated, that means consumers will likely see even higher food prices at the shelf in the future.  Stripping out food and gas, the annual inflation rate vs. last year is +5.9%.  Three observations:

     First, this inflation is not transitory or temporary.  In July 2021, President Biden said the increase in prices consumers was seeing was not persistent inflation and would be temporary.  After thirteen consecutive months of price increases, clearly the President was wrong last year.  Inflation is here for at least another year.    Even liberal CNN has said the president shouldn’t have called the inflation transitory. 

     Second, Biden’s failed policies have fueled inflation.  The POTUS continues to pass the buck on the economy, but the $1.9 trillion stimulus bill passed last year heavily contributed to the current inflationary mess.  America’s policy of ‘spending’ its way out of economic downturns finally caught up with the good ole USA.   Couple that with Biden’s ‘war on fossil fuels,’ policies and you have gasoline at record prices.  The first way to solve a problem is to admit one exists.  The Biden administration has failed to acknowledge inflation even exists, so it unlikely they have a plan to get it under control.

     Third, sponges do not exist in an economic system.  Increases must be passed through.  Consumers can’t ‘absorb’ price increases without increases in wages.  A retailer or a producer cannot ‘absorb’ an increase.  They must pass them through.  If increases are bottlenecked anywhere along the supply chain, disfunction occurs.   The answer to high prices is high prices.  When prices reach a level where demand comes down, prices will fall.  It is basic economics.

     Inflation has brought with it two big problems: Wages haven’t kept up with price increases and rising interest rates have decreased investment activity.  President Biden has blamed inflation on Putin’s invasion of Ukraine, but the truth is the US has a significantly worse core (excludes food and gasoline) inflation rate than the rest of the world. Most economists believe it is because the US spent so much on stimulus.  The best thing the government can do to help stop inflation is to stop spending money.  In the 1970s, OPEC’s policies on oil exports created double digit inflation in the U.S.  In 2022, the cause of high prices is not external, it’s internal.  President Biden’s failed economic policy that doesn’t put America first has lowered the average U.S. consumer buying power by 22% in the past 18 months. 

     Instead of pandering to Saudi Arabia to sell the US more oil, perhaps President Biden should meet with domestic energy leaders and ask them what their government could do to help them.  But government is where you find the sponges.  They absorb everything and don’t pass anything on.