After high-fiving with Democrats passing his $1.2 billion bipartisan infrastructure bill Nov. 9, the rest of 78-year-old President Joe Biden’s social spending programs are in jeopardy after today’s Consumer Price Index [CPI] was up a whopping 6.2% from Oct. 2020. Core inflation spiked 4.6% when taking out food and energy, something undermining prospects of any economic recovery. Inflation hit the highest point since 1990 or 31 years, leaving Wall Street jittery, with the Dow Jones Industrail Average shedding 240 points or .66%. Rising inflation is something predicted by many economists after Biden’s government went on a wild spending binge to deal with the global Covid-19 pandemic and deep recession. Passing a $1.2 trillion infrastructure bill also spurred more inflation fears, with government spending outpacing revenue projections, leading to a $3 trillion federal budget deficit.
Biden’s plans to keep the U.S. Treasury borrowing more cash from the Federal Reserve Board no longer looks viable, with government spending at record levels, now fueling the worst inflation in 30 years. Whether current supply chain problems due to the pandemic have hurt or not, inflation doesn’t bode well for Biden politically, now that he’s over-heated the economy to the boiling point. Federal Reserve Board Chairman Jerome Powell, 68, will be forced to douse the inflation flames by hiking the Federal Funds Rate before expected in 2022. Factoring into inflation are more the food and energy, with rents and big ticket items like housing and cars leading the way. Biden has no answer for how to tame the inflation beast, now threatening to engulf the U.S. economy. Oil prices jumped 12.3% for the month, over 59.1% during the past years, taking a bite out of consumer spending.
Basic food prices, including meat, poultry, fish and eggs rose 1.7% for the month, and 11.9% over the last year. Used vehicle prices leaped 2.5% for the month, and 26.4% for the year, a sheer sign of inflation. Labor Department reported that wages fell 0.5% from September to October, a sign that inflation is gobbling up consumer salaries, a bad sign for the upcoming holiday shopping season. Biden and his Democrat friends hoped to push through a $1.75 trillion social spending program, adding insult-to-injury to the Nov. 8 $1.2 trillion infrastructure bill. Whatever Biden hoped for easy passage, any further massive government spending is going to have to wait until there’s a better gauge on long-term inflation. As it stands now, the CPI jumped 6.2% in October, an annual increase of 74.4%. No one knows what direction the Covid-19 pandemic will take over the Winter months but if sharp increases in unexpected places are the norm, it won’t help the U.S. economy recover anytime soon.
Biden’s trying to convince the public that the Covid-19 global pandemic has contributed to the inflation because of bottlenecks in the supply chain, preventing containers from getting to retail destinations from the nation’s biggest ports. When you add to that a nationwide truck driver shortage, there’s no reason to assume that things will be fixed, as Biden insists, anytime soon. Adding to the bad CPI number, shelter costs, including residential rentals increases 0.5% for October and up 3.5% for the year. “Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures,” said Seema Shah, chief strategist for Principal Global investors. Watching the inflation number carefully, Wall Street began to sell off, a sign that the unprecedented bull market could be fizzling out.
Powell, looking for another six years, knows that he can’t pull the trigger on interest rates until he’s certain that inflation risks are far greater than a protracted recession. With consumers running out of steam, the U.S. economy could see another bout of “stagflation,” where inflation rages while wages remain flat or are in decline. Wall Street traders are beginning to price in at least two Fed rate hikes in 2022, maybe a third if inflation continues to escalate. Once sell-offs or profit-taking takes place, it doesn’t take much to create panic selling, dropping the otherwise inflated stock indexes back to more reasonable levels. Claims for unemployment dropped to 267,000, declining 4,000 from the previous week. Whether that trend continues is anyone’s guess. Generally low unemployment signals a better economy, where consumers have more cash to spend on a variety of goods and services.
Inflation has thrown a monkey wrench in Biden and Democrats’ plans for more profligate government spending. Between former President Donald Trump’s $900 billion stimulus last December and Biden’s $1.9 trillion in March, the government has already spent $2.8 trillion on pandemic relief. Add to that another $1.2 trillion, that’s $4 trillion in government spending, now fueling inflation. If Biden gets another $1.75 trillion, that would put the total at $5.75 trillion, a number so staggering it’s unprecedented in terms what it’s doing to inflation. While Wall Street has ignored so far the whopping $3 trillion dollar federal budget deficit and nearly $29 trillion National Debt, it’s going to rain on Wall Street’s parade. Inflation today reminds the Fed and Wall Street that the current level of government spending is unsustainable. Beyond that it spells doom for Democrats in the 2022 Midterm elections.
