The American Bureau of Labor Statistics (BLS) reported in November that the nation’s rate of inflation, specifically the Consumer Price Index (CPI), had touched an alarming 6.2 per cent.
This is the highest figure reported since 1990.
For a nation which prides itself on usually keeping inflation rates around the 2 per cent mark, this increase in CPI was both anomalous and worrying. It also bore the portents of political consequences, because, according to official figures, the rise in inflation began soon after Joe Biden won the American presidential elections in November 2020.
As Swarajya pointed out last week, the last time inflation rose like this, in 1990, Bush Sr lost out on a second term, and a Republican presidential candidate hasn’t won California since.
This recent rise in American inflation rates is shown in a chart below:
As the data shows, the rise was steepest in the spring of 2021, when inflation soared at over one per cent a month on average. In March, it was 0.9 per cent, in April it was 1.6 per cent, and in May, it was 0.8 per cent.
Everyone’s got their own pet theory on why inflation’s on the rise in America.
The Republicans, led by Florida senator Marco Rubio, believe it’s because the government is in the hands of ‘far left lunatics’, whose steady gravitation towards electorally-expedient welfarism, and a general lack of policy direction, are only going to make matters worse.
The socialist interpretation (once as rare in America as the Vu Quang Ox, but as ubiquitous as the mumps today), echoed by economist Robert Reich in a piece in the Guardian, is that closet cartelization by corporations is letting them surreptitiously raise prices in concert, to rake in record profits.
According to Indian mainstream media, the rise in prices is a result of high demand, on the back of an earlier-than-expected economic recovery in America, shortages caused by still-disrupted supply chains, and compounded by the injection of financial stimuli (too much cash in the system chasing too few goods and services). The worry then, for these analysts, is that costlier imports from America mean higher prices in India. Maybe so, but the Indian Rupee has remained largely stable against the US Dollar over the past year.
Edward Luce, writing in the Financial Times, says it’s something else; according to him, the problem lies in President Biden’s belief that the Wuhan virus epidemic would go away once the vaccine rollout reached full throttle. Apparently, that didn’t happen due to a combination of the delta variant’s virulence, and cultural reasons (a cautiously creative twin-euphemism for vaccine inefficacy and hesitancy), as a result of which, demand remained weak while the trillion-dollar stimulus made matters worse.
His conclusion, then, is that inflation always punishes the left (that word again, used in conjunction with the Democrats); and his prescription is for Biden to vaccinate citizens adequately (how and with what remains unstated, naturally), by embracing the vaccine culture wars!
However, the official BLS interpretation is far more to the point. As it unambiguously states in its last report:
This is corroborated by Swarajya’s independent data analysis. As a second chart below shows, inflation rose because international oil prices started rising with Biden’s victory, which in turn led to significantly higher gasoline prices:
Biden’s plan had been to get the American economy booming after a shattering year of the epidemic, by increasing expensive domestic oil production from ‘shales’ under the umbrella of higher crude oil prices.
This approach had worked brilliantly for presidents in the past two decades, but it didn’t this time, because of two reasons — weak demand, and a glut of oil in the market.
His desperate response was to somehow try and reduce international oil prices, so that declining gasoline prices would reduce inflation rates in turn.
For this, he announced a symbolic release of 50 million barrels of crude oil from America’s strategic petroleum reserves, in conjunction with smaller releases from other major consumers, including India and Japan.
The price of Brent crude, an international oil benchmark, did come down from around $82 per barrel on 25 November to around $74 on 29 November, but 50 million barrels is an infinitesimal volume against a daily global consumption figure of around double that.
It is, therefore, difficult to imagine a season of reduced oil prices stemming from this one-time token release of strategic reserves. Rather, one may expect oil traders to take advantage of this temporary reduction in spot prices to short futures — exactly what Biden doesn’t need right now.
What he needs, on the other hand, is the oil price to hover in the $60-70 band (a price the world had gotten used to), and increased demand. That way, both producers and consumers can balance their books, activity in the American upstream petroleum sector would recover to its pre-pandemic levels, the American economy would crank up, and prices might be kept in check.
That’s a tough ask right now because the glut is real, and because inflation is deterring demand from rising at the requisite pace. It’s a vicious cycle which can be broken only if Biden employs some deft diplomacy (see here for a detailed explanation); and there’s a huge question mark on whether he can do that, since his predecessors this century (other than Trump) have consistently eroded America’s traditional ability — indeed, self-ordained right — to set the international oil price.
Nonetheless, as intriguing as the inflation mess Biden and America are entangled in presently, has been the general tiptoeing around it by political pundits. According to political commentator Andrew Sullivan, such selective reticence is a narrative in itself, and falls into two categories.
The first pooh-poohs inflation as a ‘phantasm’ or justifies it; per Forbes, the inflation scare didn’t match reality, and that it “…is another in a series of false alarms going back several decades”.
That was in May 2021.
CNBC stuck its neck out half a year ago and concluded that “Inflation looks bad now, but it’s pretty much sticking to the script”; “the numbers at least for now are on the side of those expecting the trend to subside and then stabilize at lower levels.”
The second labels efforts to discuss inflation woes as political fear-mongering. A piece in the Washington Post called such efforts “Republican scare-mongering to derail the Democratic agenda”.
But the dam can be held only for so long. Whatever one’s opinion or political inclination, the fact is that inflation in America is at 6.2 per cent now, and practical, applicable solutions are hard to be found.
Perhaps, that is why Vice-President Kamala Harris chose to break the Democrats’ long silence — as only she can.
Speaking at a recent public event, she defined the situation thus: “uhh…prices… have gone up, and families… and individuals…are dealing with the realities of…of…that bread costs more…that gas costs more…” This epic master class in economics was accompanied by much head-shaking, humming and hawing, a frequent throwing-up of the hands, and the odd, wry moue of resigned discontent — all rather reminiscent of John Malkovich’s fatalistic line from the film, Dangerous Liaisons: “It’s beyond my control!”
Well, if it is, and if this is the sort of superficiality and superciliousness the Democrats employ, to tackle the most serious economic issue America has faced in decades, we can rest assured that it will be someone other than Biden, Harris, and the Democrats, who will be solving the problem before long.
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