Inflation has blipped back up to nibble at Americans’ budgets and patience. While the rise is relatively modest, it’s enough to revive the public’s concerns about the eroding value of their dollars. Worse for the Biden administration, the most severe effects were seen in the price of gasoline, which emphasizes the White House’s vulnerability on economics and, especially, energy. The pain will be felt by consumers, and they’ll be looking for somebody to punish.
Prices Outstrip Wages
“The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.6 percent in August on a seasonally adjusted basis, after increasing 0.2 percent in July,” the U.S. Bureau of Labor Statistics reported September 13. “Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment.”
Gasoline alone accounted for more than half of the increase; prices were up 10.6 percent from the previous month. The price of a gallon of regular is down from the all-time high of $5.016 on June 14, 2022, according to AAA. But at $3.858 per gallon it’s higher than it was a week ago or a month ago, which means more pain at the pump for people fueling their vehicles.
Compared to the annual inflation rates of last year, which hit 9.1 percent in June 2022, August’s 3.7 percent rate is modest. But it’s up from 3.2 percent in July and inflation is cumulative, incrementally eroding purchasing power often more quickly than wage increases can match.
“Real average hourly earnings for all employees decreased 0.5 percent from July to August, seasonally adjusted,” the U.S. Bureau of Labor Statistics reported at the same time it released CPI figures. “Real average weekly earnings decreased 0.1 percent over the month due to the change in real average hourly earnings combined with a 0.3-percent increase in the average workweek.” On an annual basis, from August 2022 to August 2023, real average hourly earnings increased just 0.5 percent.
To put it another way, to purchase what cost $100 in 2019, the last year before the pandemic and its accompanying inflationary government policies, you needed $114.47 in 2022, according to the American Institute for Economic Research (AIER). 2023 values will be calculated after the end of this year.
“Inflation is still trending broadly in the right direction,” AIER economist Alexander William Salter assures those of us wincing at the news. “The Federal Reserve shouldn’t consider another rate hike, at least not yet. The inflation uptick for August was disproportionately driven by energy prices. Those rose 5.6 percent in August alone—a major swing! Gasoline in particular is up 10.6 percent monthly. But let’s remember that energy prices are notoriously volatile.”
That offers at least some comfort for Americans who would like their paychecks to stop eroding before their eyes. Energy prices are volatile, which is why, along with food prices, they’re not included in measures of so-called core inflation (which came in at an annual rate of 4.3 percent in August, down from 4.7 percent in July). But gasoline is also a necessary purchase for most people. The current inflation news highlights a major vulnerability for the president and his supporters.
Inconvenient Energy Policy
“Canceling all remaining oil and gas leases issued under the previous administration in the Arctic Refuge and protecting more than 13 million acres in the Western Arctic will help preserve our Arctic lands and wildlife,” President Biden announced September 6 in a much-publicized statement.
The Biden administration is publicly committed to “end fossil fuels” and forcibly shift U.S. energy production from oil and gas to “renewable” (unless you count mineral inputs for generators and batteries) solar and wind. That means explicitly blocking oil and gas drilling, but also discouraging investment in parts of the energy industry disfavored by the regulatory environment.
“The nation’s capacity to refine crude oil into fuel and other products fell below 18 million [barrels per day] at the beginning of 2022 and hit its lowest level since 2014,” S&P Global Commodity Insights noted last year.
Capacity ticked up a little since then, though it’s likely to decline over time as refineries slowly close.
“Refiners are unlikely to invest hundreds of millions of dollars in recommissioning costs for only one or two years of strong returns, against a backdrop of the Biden administration’s promise to ‘end fossil fuels,'” the Institute for Energy Research commented in June 2022 as gasoline prices soared.
Whatever benefits, if any, a shift to solar and wind may offer in the future, reduced fossil fuel production threatens higher costs for consumers who need energy, especially gasoline, now. And while other factors, including Russian and Saudi gamesmanship, play a big role in oil prices, there is a good chance people will assume the president is keeping his promise to “end fossil fuels.”
A Political Price to Pay
“A majority of respondents to the Redfield & Wilton Strategies/Newsweek poll blamed the Biden administration for the surge in gas prices, with 55 percent saying that the recent increase was ‘primarily’ caused by the U.S. government mismanagement,” Newsweek reported this week of a poll conducted before the release of the latest inflation numbers.
The president is already vulnerable on matters of dollars and cents. Only 36 percent of those recently polled by the Associated Press-NORC Center for Public Affairs Research approve of his handling of the economy. The White House has been pushing back, boasting of supposed economic successes, but that hasn’t budged public opinion.
Lingering inflation and rising gasoline prices won’t convince anybody that they’re prospering.
Of course, politics aside, the bigger question is how the eroding dollar affects people’s lives. Data shows that spending is up on essentials including housing, transportation, and food, and down in discretionary areas such as entertainment. The relative gloom is expected to continue for the near future, with inflation taking much of the blame.
“Median one- and five-year-ahead inflation expectations rose slightly in August,” the Federal Reserve Bank of New York reported this week of consumer survey results. “Similarly, year-ahead expectations about households’ financial situations deteriorated in August with the share of households expecting a worse financial situation in one year from now rising.”
As budgets are pinched by prices that outstrip wages, people feel real distress. Government officials constantly experiment with money, debt, spending, energy, and economic matters, indulging trendy theories as if they’re playing a game. But when theories fail and economic rules reassert themselves, it’s human beings who feel pain, at the gas pump and elsewhere.
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