The Great Inflation of 2021-2023 revisited
Yesterday, I wrote about a questionable “fact check” by KSTP which said that a Minnesota Congressional candidate’s claim of “20% inflation” was misleading.
I noted that:
Inflation is calculated as the rate of increase in a price index like the Consumer Price Index (CPI). If you want to calculate what inflation has been between any two points in time, you simply calculate the percentage increase in the index over that period.
I went on to say that:
If we calculate the increase in the price level — inflation — since the Biden/Harris administration came to office in January 2021 we get a figure of 19.7%, or 20% if you’re rounding, exactly as Teirab’s ad said.
But you can’t please everybody. One correspondent emailed me to say:
Inflation for the last four years of Obama was cumulatively 4.5%. During Trump it was nearly 8% over the next four years. Do you say when Trump was president we had 8% inflation? Or that he nearly doubled inflation? I didn’t think so.
Well, lets look at the data. Figure 1 shows the total rise in the CPI in President Obama’s second term, President Trump’s term, and that so far for President Biden and Vice President Harris. It shows us that inflation over Obama’s second term was 5.2% and 7.8% over Trump’s term, a rate 1.5 times that of Obama’s second term. That is because the average monthly rate of inflation during Trump’s term — 0.2% — was double that during Obama’s second term, 0.1%. If my correspondent had waited for my answer to his question instead of answering it incorrectly himself, he would have seen that all of this is a matter of fact and I have no problem at all saying so.
Figure 1: Increase in Consumer Price Index
It should not be a surprise that the self-styled “King of Debt” would prefer lower interest rates and higher inflation — which would erode the real value of that debt — to higher interest rates and lower inflation. This is one reason why Trump was badgering Federal Reserve Chairman Jerome Powell to cut interest rates throughout his presidency, even before COVID-19 struck.
In the current issue of our magazine, Thinking Minnesota, I write that, on coming to office, President Biden:
…could have claimed that he inherited “Trumpflation”…
There was one glaring problem with that:
…Biden had only ever criticized Pres. Trump’s policies for not being expansive enough. As a result, he was reduced to lashing out at a range of unlikely economy-related culprits. “Supply chains” were blamed despite real output regaining its pre-COVID peak in the first quarter of 2021; businesses mysteriously became greedier in 2021 than previously; and Russia’s invasion of Ukraine in February 2022 had somehow caused the annual rate of inflation to rise from 1.4 percent to 7.6 percent in the year preceding it.
Then the Biden administration added fuel to the fire. Besides a low inflation rate, it inherited an unemployment rate of 6.4 percent [down from a peak of 14.8 percent in April 2020] and two quarters of real GDP growth. Nevertheless, it believed the economy needed further stimulus and proposed the American Rescue Plan (ARP) totaling $1.9 trillion, an infrastructure bill of $2.3 trillion, and the American Families Plan of $1.8 trillion. The non-partisan Committee for a Responsible Federal Budget estimated that the ARP alone would exceed the “output gap — the difference between actual economic activity and potential output in a normal economy…two to three times over.” Larry Summers, treasury secretary under Pres. Bill Clinton, said, “I think this is the least responsible macroeconomic policy we’ve had in the last 40 years.”
So, back to Figure 1, you will notice as I replied to my correspondent that “the plain fact is that the CPI has risen by 20% since January 2021.” And we’re back where we started.
As a rule I turn off political ads as soon as they come on so I make this request of my respected correspondent: If you see any other economic claims made by Minnesota candidates of whatever party which you think are misleading, please send them my way.