The latest release by the U.S. Bureau of Labor Statistics unveiled a 0.4 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U) during September - up from 0.1 percent in August - with the year-over-year inflation at 8.2 percent.
The Consumer Price Index (CPI) is used to measure the average change of prices for a wide variety of goods and services. The month of September saw the biggest percentage increases in shelter, food, and medical care indexes, which were partly offset by a 4.9 percent decline in the gasoline index.
The decline in gasoline may offer cautious optimism to consumers, but gas prices are still 18.2 percent higher than this time last year. In fact, most inputs to CPI are still above last year's marks.
The Congressional Research Service (CRS) attributes times of high inflation to two phenomena:
“Demand-Pull inflation occurs when demand for goods and services within the economy exceeds the economy's capacity to produce goods and services.”
“Cost-Push inflation occurs when the price of input goods and services increases.”
The public demand for goods has significantly recovered but is inhibited by still-recovering supply chains, creating the demand-pull effect. CRS credits 2022 supply disruptions to “ongoing labor shortages, temporary business disruptions linked to COVID-19 outbreaks, and commodity shortages linked to the 2022 Russian invasion of Ukraine.” These issues surrounding the poor economic state in America are known and can be directly addressed by introducing new policies.
The most salient solution to runaway inflation is the raising of interest rates set by the Federal Reserve. The main goal of increasing interest rates is to raise the cost of credit (borrowing) throughout the economy. The Federal Reserve has now raised interest rates six times in 2022, the most recent on November 2. These interest rate increases are supposed to incentivize consumers and businesses to cut spending and borrowing and prioritize saving. If the Federal Reserve’s actions work, they will lower the demand for goods and services and lead to lower costs (or slower price increases) in the long run.
While fiscal and regulatory policy may play a less significant role in slowing inflation than Federal Reserve interest rate increases, NTUF recently outlined an anti-inflation agenda for Congress. Our top solution is “making it easier and less expensive for energy producers in America to quickly increase domestic energy production and supply.” This proposal would involve increasing the total supply of energy, something needed to curb costs for consumers.
A recent survey conducted by YouGov shows that Americans believe increasing domestic oil production has the highest probability to lower inflation. This idea was far more supported by respondents than more dubious proposals such as increasing taxes on corporations or enacting government price controls. Taxpayers have spoken and they agree that it is vital to increase domestic energy production if the United States wants to cut inflation now and in the future.
In addition to energy policy, NTUF’s Bryan Riley has also conducted extensive work on ending Trump-era Section 301 tariffs. These tariffs affect about two-thirds of all imports from China. The additional costs imposed by these tariffs are passed onto American consumers, making goods more expensive than necessary.
Runaway spending by the government also contributes to inflation and pushes the United States deeper into debt. In June, the Committee for a Responsible Federal Budget suggested pulling back COVID relief funding from the economy and resuming student loan repayments, two policies NTUF also generally supports. Cutting back on government spending by ending COVID relief reduces U.S. debt levels almost immediately, returning potentially tens of billions of dollars to Treasury coffers. The student loan repayment pause will end on January 1, per new Biden administration policy, but was also accompanied by expensive student debt cancellation policies that could exacerbate inflation.
No one policy change outlined above will end runaway inflation by itself, but taking these necessary steps in tandem will move the U.S. toward lower inflation and a more economically sound future. Taxpayers are not naive to the rising costs of goods and services within the United States. Answers are needed and the longer it takes to curb the rampant inflation the longer Americans will suffer.