Sunday, April 17, 2022

Inflation



Last Wednesday, Presidential press spokesperson Jen Psaki deftly defended President Biden against implied criticism for soaring inflation:

Q    Yeah, the producer price index on inflation came out at the highest level that they’ve had in the history of recording these events.  This is the price that companies are paying for the materials that they need to make the stuff that they sell, right?  So, with the last two days — the inflation reports — does the White House believe that inflation has now peaked and we’re coming back down?  Or because of these reports, do you think we’re going to see even worse numbers in the future?

MS. PSAKI:  We’ll let the Federal Reserve make projections about that; they have the purview over those projections.

What I will say is that while we — and we talked about this over the last couple of days, as it relates to the CPI data — consumer price index — as opposed to producer price index, for others — and what we saw: While energy accounted for 70 percent of the monthly inflation in March on CPI data, it counted for a substantial portion of PPI inflation as well.

And PPI measures things like the cost of wood, metal, plastics — kind of, materials like that.  So it’s not necessarily — it’s not a surprise to us that energy is having an impact — is a driver of these numbers. 

Obviously, what we’re trying to do is mitigate the energy impact and take steps to do exactly that: release from the Strategic Petroleum Reserve and other actions working to get more supply out into the marketplace. 

But, you know, again, projections of a — of when we’re hitting a high and where it will look, we will leave that to the Federal Reserve.

Q    And one last one.  So, does the President then acknowledge any responsibility for the inflation that we’re seeing now based on the decisions that he’s made when he came into office?

MS. PSAKI:  Well, I would say, as the President has talked about quite a bit, there are a range of factors, including the pandemic, the impact on the supply chains.

And our effort and what we’ve tried to do from the beginning is take steps to address that — address the supply chains.  And we’ve had a lot of success moving more equipment and goods, through — through ports, et cetera. 

We’ve also seen, given energy is such a significant driver of this data, an increase in energy prices over the last month-plus — since the invasion of Ukraine.  That’s factual.  That’s based on data that we have seen out there. 

So, our effort and our focus has been to try to address it and take mitigation measures when we can.



While the media generally ignores rising wages and plummeting unemployment, Psaki needed to remind the press and the public of the impact on supply chains of the pandemic and the effect of Russia's invasion of Ukraine upon gasoline prices. She did, however, leave out one thing.

The flexibility of the public, also known as a tolerance for getting ripped off, seems to be working for companies. Megan Leonhardt notes

Consumers, however, are somewhat tolerant of price increases during emergencies, research shows. Less than half of U.S. consumers, for example, thought the price increase in hand sanitizer at the beginning of the pandemic was unfair, according to a recent working paper by Columbia researchers. “Consumer norms about fairness seem pretty flexible. So what people think is fair can be highly context dependent,” Christopher Buccafusco, coauthor and professor at the Cardozo School of Law, tells Fortune.

Corporations know how to exploit that. Economist Michael Meeropol explains

Companies always want to maximize profits, right? In the current context, they suddenly cannot deliver as much anymore as they used to. And this creates an opening where they can say, well, we are facing increasing costs. We are facing all these issues. So we can explain to our customers that we are raising our prices. No one knows how much exactly these prices should be increased. And everybody has some sort of an understanding that, oh, yeah, there are issues, so, yes, of course companies are increasing prices in ways in which they could not justify in normal times.

But this does not mean that the actual amount of price increase is justified by the increase in costs. And as a matter of fact, what we have seen is that profits are skyrocketing, which means that companies have increased prices by more than cost. In the earnings reports, companies have bragged about how they have managed to be ahead of the inflation curve, how they have managed to jack up prices more than their costs and as a result have delivered these record profits.

So Jen Psaki neglected to attribute any portion of inflation to profiteering, nor did she mention the creeping influence of monopolistic business models. But she did push back on the persistent narrative that the President is responsible for surging price increases.  Assuming she soon leaves her position as expected, the Administration is likely to suffer a significant loss.

 


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