PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

More Bad News: Inflation Got Worse in June

By at 13 July, 2022, 10:28 am

by Raymond J. Keating –

Perhaps you thought that inflation could not get any worse than the Consumer Price Index data we saw for May 2022? Well, if so, you were wrong. CPI inflation actually got worse in June, according to the latest report from the U.S. Bureau of Labor Statistics.

After jumping by 1.0 percent in May, CPI leaped by 1.3 percent in June. The data over the past year, as illustrated in the following chart from the BLS report, has been ugly.

Source: U.S. Bureau of Labor Statistics, “Consumer Price Index – June 2022.”

Over the past year, CPI inflation ran at 9.1 percent. That was the fastest inflation rate over a 12-month period since the one ending in November 1981.

As a reminder, inflation is an ongoing rise in the general price level. And among the ills generated by inflation are increased costs for businesses and consumers, greater uncertainty, rising interest rates, and higher taxes (such as the capital gains tax since capital gains are not indexed for inflation).

Our current bout of inflation has been going on since early 2021. And as every individual, family and small business can now attest, inflation means that the purchasing power of the dollar is diminished. Therefore, inflation itself often is referred to as a tax.

Even worse, the U.S. isn’t just battling inflation, but stagflation, which is the combination of inflation with either a stagnating or recessionary economy. Given that inflation, to a significant extent, is due to too much money chasing too few goods, the fact that economic stagnation is coupled with inflation shouldn’t be surprising.

The answer to stagflation hasn’t changed since we broke out of it in the 1980s. The wrong answer is for the Fed to try to slow the economy. After all, inflation being attributed to an “overheating” of the economy always has been mistaken. The real answers are clear. Monetary policy should be geared toward returning to price stability, specifically, by reining in the incredible excessive growth in the monetary base pushed by the Fed for the past nearly 14 years. And the economy needs to be spurred forward by incentivizing the engines of economic growth, such as entrepreneurship and investment, through substantive and permanent tax and regulatory relief, reduced growth in government spending (at the very least), and expanding free trade.

Unfortunately, as policymaking stands today, the Fed is trying to slow the economy, and its being aided in that effort via anti-growth tax, regulatory and trade policies from President Biden and Congress. Our policymakers are taking exactly the wrong steps.

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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