You aren’t just imagining it; things are getting more expensive. Consumer prices rose in June for the third straight month, increasing over 5.4% since this time last year. The Federal Reserve tries to target a 2% inflation rate.
The data back up what many of us have experienced firsthand. Gas prices are up. The housing market is hot. Used cars have jumped in price.
We have been told by the Fed that this inflation is “transitory.” This isn’t very reassuring. Higher prices are higher prices. Nobody pays more for gas or groceries and says “welp, at least this is transitory.”
There also is mixed messaging coming from the White House. President Biden says inflation is not a major issue. Janet Yellen, the U.S. Treasury Secretary, tells us it’s here to stay for the next couple of months.
Back in 2009, conservatives said there would be rampant inflation from all the spending following the Great Recession. It became a bit of a boogeyman. There wasn’t inflation — despite the Federal Reserve injecting trillions of new dollars into the economy and the stimulus package — because the economy never came close to overheating.
We aren’t running into that issue this time around. Congress is spending close to three times the level of the economic output shortfall, according to Larry Summers, a liberal economist and Obama alumnus. He was skewered in February for saying that it might cause inflation.
There are certainly other factors impacting price increases. The impacts of COVID-19 continue to wreak havoc on the world’s economy. Drought is killing crop yields throughout North Dakota and the country. A microchip shortage has thrown a wrench in the automobile industry. Too much spending can cause prices to increase; so can a shortage of things to buy.
But this debate over inflation comes on the heels of record federal spending. Many states — including North Dakota — have more American Rescue Plan dollars than they know what to do with. State legislators here have eyed 2023 before they even start spending most of it.
Some Democrats in Congress are proposing spending another $4.7 trillion on infrastructure. At a certain point, there needs to be an acknowledgment that decisions have tradeoffs. And one tradeoff of more government spending can be higher inflation. This is on top of the perennial debate we have about the nation’s debt.
When prices go up faster than wages, we’re nearly all worse off. If the goal is to increase our standard of living, inflation eats away at that. Pretending it won’t happen doesn’t make it so.
The medicine for inflation isn’t fun. Washington will eventually have to put away the credit card or raise taxes. Interest rates will eventually have to go up. Politicians don’t like any of these things. Voters usually don’t either.
Some of the price increases are likely to be temporary; the train hasn’t completely left the station yet. Inflation isn't the only consideration for policymakers. But when Congress is looking at spending trillions of more dollars on infrastructure during a period of historically low interest rates, it should be given more than just passing thought.
After leaving for a few years to work on Capitol Hill and study economics at the University of North Dakota, Sean Cleary now lives with his wife in his hometown of Bismarck.