BREAKING: Inflation hit 39-year high in November

Also breaking: the spin cycle at the White House. A few days ago, CNN reported that Biden’s aides had begun “productive” meetings with media outlets to shape economic reporting more favorably to Joe Biden. Well, Americans don’t need a weatherman to know which way the economic winds are blowing:

Inflation jumped to the highest level in nearly 40 years, fresh data released on Friday showed, as supply chain disruptions, rapid consumer demand and rising housing costs combined to fuel the strongest inflationary burst in a generation.

The rising costs spell trouble for officials at the Federal Reserve and the White House, who are trying to calibrate policy at a moment when the labor market has yet to completely heal from the pandemic, but the risk that price increases could become more lasting is increasing.

The Consumer Price Index climbed by 6.8 percent in the year through November, the data showed, the fastest pace since 1982. After stripping out food an fuel, which can move around a lot from month to month, inflation climbed by 4.9 percent.

Prices were up 0.8 percent from October, according to the report. That’s slightly slower than the prior monthly increase, but still an unusually rapid pace.

Food and fuel, of course, are the staples of American households. Remember Don Lemon’s operatic hailing of a seven-cent projected drop in the price of gas? What do you think he’ll be singing tonight? “All By Myself,” if there’s any measure of justice coming. People who don’t have multi-million-dollar contracts for an hour’s worth of work on television certainly aren’t signing hosannas as their buying power erodes, especially on food and fuel prices.

The Washington Post’s Heather Long reports that inflation is hammering families across the board:

The rest of us non-Lemons will be singing, “Busted.”

The Wall Street Journal calls this level of inflation “frightening,” but also notes that the level of economic growth remains a good sign:

U.S. inflation hit a 39-year high of 6.8% last month, the Labor Department said Friday. Consumer demand and supply shortages continue to pressure prices.

The November prices trend came before the emergence of the Omicron variant of Covid-19, which poses a new threat from a pandemic that is well into its second year.

“These are frighteningly high inflation numbers, the likes of which we haven’t seen for decades,” said Allen Sinai, chief global economist and strategist at Decision Economics, Inc. …

“We have tremendous spending by consumers. A lot of people are getting hired. Demand is huge. Monetary policy remains very easy and fiscal stimulus has no precedent in history,” Mr. Sinai said.

That’s also the problem. The monetary policy and stimulus over the past 22 months, especially the last tranche in March, stimulated consumer demand into overdrive while supply-chain issues were being ignored. It’s not just the stimulus, either. MarketWatch pointed out yesterday that the orientation of pandemic relief in the US has created a unique inflationary model that simply doesn’t apply in other free-market countries:

One reason U.S. inflation might be hotter than the rest of the world is how countries decided to help their workers in the early days of the pandemic.

The U.S. mostly relied on generous unemployment benefits and direct stimulus checks, while Europe and Japan, by contrast, mostly relied on furlough programs. …

Europe and Japan have not confronted the same issues the U.S. has found with a surge in job openings. “Preserving the employment relationship appears to have kept the economy on a path where the recovery is closer to bringing the economy to its pre-pandemic state, at least in terms of the Beveridge curve relationship,” said Shin, who previously was an economics professor at Princeton University. The Beveridge curve refers to the relationship between job openings and unemployment.

The U.K., he concedes, is one place that did rely on furlough programs but also has seen a rise in job vacancies. But in most advanced economies, average wage growth is more or less in line with pre-pandemic trends, or a little below. “It is notable, however, that in the United States, where labor market changes are most apparent, wage growth has picked up despite labor market conditions that appear weaker than before the pandemic,” he said.

And that’s why he suggests the U.S. might be facing an inflation problem longer than other economies.

“The key to gauging where global inflation is headed is in the labor market, and whether the reduced efficiency of matches exhibited in the Beveridge curves of some economies translates into a more sustained wage-price spiral. In this respect, longer-term structural issues are more important in understanding the current state of the global economy, especially when we consider future inflation developments,” he said.

This structural gap began with the CARES Act and the decision to apply generous federal subsidies to unemployment benefits. We should have instead expanded the Payroll Protection Act to fund furloughs that kept employees in place and provided them an income for the duration of the shutdowns. That would have allowed businesses to scale back up more quickly and might have prevented the massive churn seen for the last several months in jobs markets. Hindsight in this case is 20/20, but it’s not as if several voices in Congress warned about emphasizing and subsidizing unemployment.

The problem now is that the Biden administration, and Biden himself, keep appearing surprised by the utterly predictable. They spent months asleep at the switch on the supply-chain crisis and then spent months denying that inflation was a problem at all. They’re still looking to get kudos for a few cents’ decline in gasoline even though those prices have gone up a dollar or more since Biden took office. And each month, that clueless denialism becomes more apparent.

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