06.16.2021 0

Congress needs to stop spending to staunch rapid inflation rise

This sustained and substantial increase in the producer cost of final goods is akin to finding a dead canary in the mine shaft of government spending excess.

By Rick Manning

The prices that suppliers are charging businesses and other customers rose again last month, adding to inflation pressures bubbling through the U.S. economy.

The Labor Department said Tuesday that its producer-price index rose 0.8% in May from the prior month, up from the 0.6% increase in April from March. The average rise between 2017 and 2019 was 0.2%.

The producer -price index is an inflation measure of what it costs those who make or produce the goods, services and equipment we consume, and as such, it is generally seen as a precursor to future inflation in the economy.

The unadjusted producer-price index increase of an annualized 6.6 percent in May, is up from 1.6 percent when Joe Biden took office. This sustained and substantial increase in the producer cost of final goods is akin to finding a dead canary in the mine shaft of government spending excess.

America is out of the low demand driven deflationary cycle experienced during the pandemic-induced economic shutdown, and now faces a dangerous price surge which is a function of the rapid increase in the money supply.

Congress can and should act now to stop this obvious trend in its tracks by freezing federal spending at the normally appropriated levels of 2020 as well as ending all new and unspent COVID emergency spending. By stopping our nation’s double digit money supply growth, lawmakers would undercut the primary inflation driver.

Inflation is dangerous because it is the ultimate hidden tax. Inflation means that our money becomes worth less, making the cost of things we purchase more expensive. The result right now is that real wages (how much you make versus how much it costs to buy the same things with that money) are going down and the higher the inflation rate the less a paycheck will buy. Naturally, that causes people to demand higher wages, which has the perverse effect of increasing the cost of goods and services creating a vicious cycle that is directly due to the federal government’s money supply increase.

America had to do what was necessary to fight the Chinese lab originated virus, but now the war is against the ravages of that spending on our economy. To win that war, Congress must reinstate the sequestration policies that the Republican House of Representatives forced upon the Obama administration just ten years ago, which lowered federal government spending, and led to dramatic drops in the budget deficit. In 2019, regularly authorized and so-called mandatory spending by the federal government was just under 4.5 trillion dollars, a level which should stand as the pre-pandemic baseline that Congress should strive to achieve when approving spending bills this year.

Rick Manning is President of Americans for Limited Government.

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