SBE Council Says Inflation Running from Hot to Red Hot
The Small Business & Entrepreneurship Council (SBE Council) reacted to the news that Consumer Price Index inflation ran at 0.9 percent in June, and 5.4 percent over the past year.
SBE Council chief economist Raymond J. Keating said, “Inflation went from running hot to red hot. If annualized, during the first six months of 2021, inflation has been running at better than 7 percent. Over the past four months, the annualized inflation rate ran at better than 8.5 percent.”
He continued, “What often gets overlooked on inflation are constraints on or disincentives for undertaking productive economic activity. With a pandemic shutdown, much of our economy obviously has faced production constraints, which clearly are driving up prices. And it is taking time – longer than some expected – to work through these constraints. Thankfully, market prices are serving as guides as to where investment and production are needed. But the process can be – and in this case, is – painful.”
Keating noted the impact of policymaking, and what lies ahead that could worsen inflation:
“While working through pandemic constraints will likely keep inflation running hot at least for a few more months, public policies threaten to make this inflation situation even worse. The unprecedented loose money the Fed has been running for nearly 13 years now stands as a serious uncertainty when it comes to where inflation might be headed.
“Meanwhile, the Biden administration and Congress are working to impose constraints on entrepreneurs, businesses, investors and workers via increased tax and regulatory burdens; industrial policies whereby politicians and bureaucrats make resource allocation decisions; the maintenance of protectionist trade measures; and government subsidies for not working. It seems like just when the private sector works through pandemic constraints, President Biden and Congress will be ready with further governmental costs and restraints.”
Keating concluded, “The right policy mix for strong growth and low inflation is monetary policy focused on price stability, and incentivizing the supply-side of the economy via tax and regulatory relief, more global trade opportunities, and restrained government spending. Right now, however, the policy mix is pointed in the wrong direction.”