PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Raging Inflation Rages On

By at 10 June, 2022, 10:51 am

by Raymond J. Keating –

Inflation spiked once again in May, according to the Bureau of Labor Statistics latest report on the Consumer Price Index.

Inflation has been raging since the start of 2021. In April, CPI inflation had slowed some, rising by 0.3 percent. That, of course, is still too high, but compared to the seven previous months, the April rise was tamer.

However, CPI jumped by 1.0 percent in May.

And over the past year, CPI inflation ran at 8.6 percent, which was the fastest 12-month rate of inflation since December 1981.

Among various points to keep in mind when inflation is running hot is that volatility also increases. So, after a month when inflation seems to be easing off somewhat (such as in April), it’s not surprising that the following month sees a spike (such as in May).

Source: Federal Reserve Bank of St. Louis, FRED

That’s just one of the problems when inflation rages. Along with rising costs and prices, higher interest rates, and increased taxes (such as on capital gains), uncertainty mounts as well.

The answers to inflation do not rest with the Federal Reserve jacking up interest rates in order to slow the economy. Indeed, that’s a recipe for worsening the current case of stagflation. Instead, we need the Fed focused on reining in the loose money it’s been running since summer 2008 – and that means, reducing the monetary base. Interest rates should be left to take care of themselves.

At the same time, policies implemented by Congress and the White House need to get refocused in a pro-growth direction. That means substantive and permanent tax and regulatory relief, opening global markets by advancing free trade, and reining in the growth in government spending.

In the end, as SBE Council has noted previously, inflation is about too much money chasing too few goods, and therefore, reining in excess money, and incentivizing entrepreneurs, investment and trade make the most economic sense.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.

 

 

 

 

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