For quite some time now, the Biden administration has told Americans that the growing inflation is “not a problem” to worry about following the recovery from the COVID-19 recession. Infusing multitrillion-dollar spending bills into the economy would not have a big inflationary impact, the administration stated, even as economists and Republican lawmakers questioned these remarks.
Later, when pressed to admit the fact that inflation is growing, the administration went on to claim the raise is only “transitory,” unavoidable, and even preferable. Mainstream news outlets just accepted and repeated the message. While economists again had a lot of questions.
But the administration’s answer may need to be altered again.
A Harvard economist tells CNN recently that wage gains wrought by coronavirus relief packages have been totally cleared out by raising inflation in the months following President Biden taking office.
CNN’s report:
“Companies big and small are raising wages to attract workers and hold onto employees as the economy revs back into gear. But those fatter paychecks aren’t going as far, thanks to rising inflation.
In fact, compensation is now lower than it was in December 2019, when adjusted for inflation, according to an analysis by Jason Furman, an economics professor at Harvard University.
The Employment Cost Index — which measures wages and salaries, along with health, retirement and other benefits — fell in the last quarter and is 2% below its pre-pandemic trend, when taking inflation into account. (Wages and salaries are growing at a faster pace than benefits.)“
“The hot economy is heating prices more than it is heating wages,” said Furman.
If the high inflation is taken from the analysis, then compensation grew 2.8% between March and June 2021, the report stated. That figure makes things look like they are going okay. But unfortunately, that’s not the whole story.
“At the same time, prices are soaring. Gas costs more. Food is more expensive. Car prices are at record levels. The consumer price index rose 0.9% in June and 5.4% over the past 12 months — the largest jumps for each since mid-2008, according to federal data,” the CNN report added.
Things seem to not to be getting any better, either. In an op-ed responding to the Labor Department’s July economic report, the Wall Street Journal editorial board stated that inflation is here and could be here to stay.
“The meaning of ‘transitory’ is getting longer all the time,” the board wrote, taking a jab at Biden’s rosy distortion of the economic outlook. “Consumer prices rose 5.4% over the last 12 months. That’s two months in a row, after a 5% annual increase in May. When does transitory, in the Federal Reserve’s inflation lingo, become persistent?”
Republican lawmakers have said for months that injecting artificial stimuli into the economy via relief bills and recovery packages would end badly for our recovery. The intervention would create growing market demand at the very same time that labor shortages would limit supply, they said. The result: growing inflation.