As the Biden Administration and Congressional Democrats pull out all the stops to divert your attention away from the economy, we've just received the worth inflation data in 40 years, again.
Consumer Price Inflation (CPI) hit 8.6% in May, the highest level in 40 years. After dropping in April, economists estimated today's number would once again show a slight decrease.
What's in the numbers? Energy and food, of course. The Core CPI number was lower at 6%, but that number only remains relevant for people who don't consume food or energy.
Over 80% of Americans rank the economy and inflation as extremely or very important, according to a recent ABC News/Ipsos poll conducted using Ipsos' KnowledgePanel.
Biden continues to whistle past the graveyard.
If you were to judge the economy only by looking at the President's twitter, you'd think the market was at all-time-highs, that real wages were going up, and that we had erased the national deficit (the amount that we add to the national yet every year). But that isn't the case. Maybe this kind of rhetoric works for some, but the American people know the truth.
What to expect:
The left will continue to blame the inflation on "corporate greed", but haven't corporations always been greedy? The truth is that businesses are always trying to make the most they can off their products. Even with "greed" taken out of the equation, the fact remains that Producer Price Inflation has increased more than Consumer Price Inflation, making the case that producers are eating some of the costs on their end. That's right, if producers were increasing prices to match their own inflation, CPI would be over 11%.
Expect more calls for "price caps" and "windfall taxes."
Regardless of your economic situation, please remember that price caps will only exacerbate the problem. If you set a maximum price below what the market will bear, you decrease the incentive for producers to supply that product. This will, as it has throughout history, lead to shortages. Those shortages will in-turn lead to higher prices (lower supply with the same demand).
Windfall taxes? In a recent episode we discussed the UK's recent move to tax the windfall profits of oil companies. They pointed out that BP and Shell had profited a combined $32 billion in 2021. That's a lot of money, but is it worth asking what they profited in 2020? Those two companies lost a combined -$42 billion in 2020. That's right, the windfall profits in 2021 haven't even made up for 2020's losses.
Even if the windfall profit tax made any sense from a moral standpoint, it will never make economic sense. Taxing profits will do what it always does- raise prices. If you need to make $10 in profit and your expenses were $90, you might charge $100. If the government taxes 50% of your profits, but you still need to make $10, you'll simply raise your price to $110. The government taxes 50% ($10) and you still get to make the original $10. What changed? The consumer paid more.
At some point we will have to recon with the fact that energy and food prices are soaring for multiple reasons.
We destroyed the supply chain in 2020
We printed too much fake money
Sanctions on Russia
There are solutions to all of these problems. The issue is that those solutions are not politically feasible for those in power. As the Nobel Prize winning economist Milton Friedman once said- "The issue is not a partisan issue. We will not solve our problem by electing the right people. We will only solve our problem by making it politically profitable for the wrong people to do the right thing."