The dollar is buying less food, fuel, and other necessities these days. Inflation, something Americans who were around in the 1970s contended with, is making an unwelcome comeback. Contrary to the repeated assertions of the Biden administration and its allies, inflation may be with us for a while.
The Consumer Price Index (CPI) jumped by 0.9 percent in October, rising 6.2 percent from 12 months prior. If annualized, that 0.9 percent rate would hit a double-digit inflation pace of 11.4 percent. The last time inflation hit double digits was from 1979 to 1981, when that three-year run devalued the dollar by 11, 13, and 10 percent annually before Federal Reserve Chairman Paul Volker and President Ronald Reagan wrung it out through tightened monetary policy and productivity increases.
We’re not likely to see either soon, as any increase in interest rates would immediately lead to a catastrophic increase in interest payments on the national debt, while President Biden’s regulatory policies and tax uncertainty are acting to discourage productivity investments.
The gloomy inflation news comes on the heels of a terrible Department of Labor third-quarter productivity report showing a 5 percent decline, the steepest drop since 1981. The same report indicated the price of labor per unit of output increased 8.3 percent at an annualized rate. The productivity decline was deepened by the early retirement of older, highly productive workers who were replaced by less experienced workers who are being paid more to entice them into the workplace, E.J. Antoni, a Ph.D. economist colleague at the Texas Public Policy Foundation told me.