Inflation is starting to look like that unexpected and unwanted houseguest who just won’t leave. Rick Scott suggested the infrastructure bill passed Friday was an example of what he said is the kind of wasteful government spending that has led to the increase in prices. Inflation is not slowing, it’s maintaining a red-hot pace and the sticker shock is hitting where families tend to feel it most. Bacon prices are up 20% over the past year, egg prices nearly 12%. Gasoline has surged 50%. Rick Scott said express concerns when they see legislation like the infrastructure bill that has unbelievable wasteful spending pass despite the fact that we have got gas prices up over 50%, food prices up all caused by wasteful government spending. The global production of oil and many other goods decreased last year. But while demand has since increased production remains below pre-pandemic levels leading to higher prices.
Government spending did increase during the pandemic with multiple stimulus packages designed for the US economy passed under both the trump and Biden administrations. Economists widely agree that the country’s economic downturn during the pandemic would have been more severe without those aid packages. It’s inaccurate to suggest as Scott did that government spending has been the primary driver of higher prices across the board. July report from Moody’s Analytics found that the infrastructure bill and Biden’s Build Back Better proposal are unlikely to inflame inflation and could even have the opposite effect by adding supply and boosting productivity.
An index published by the Food and Agriculture Organization of the United Nations which tracks monthly changes across a range of food commodities worldwide reached its highest level in roughly a decade. According to the FAO, this increase is the result of high global demand for a range of products including poultry vegetable oils and barley, combined with reduced harvests from major exporters disrupted supply chains worker shortages, and rising production costs. Higher gasoline prices are also the result of a similar pandemic-induced supply chain mess. While demand has come roaring back production is still catching up to pre-pandemic levels.
According to the US Energy Information Administration in 2020 crude oil production experienced its largest annual decline on record following a sudden drop in petroleum demand” caused by the coronavirus pandemic. US crude oil production by the end of October was at 11.5 million barrels per day up from lows of 9.7 million in August 2020 and February 2021 but still shy of peak levels in February and March 2020, when field production was around 13.1 million barrels per day. Refinery utilization rates which fell as low as 56% in February 2021, have recovered recently, reaching 86.3% by the end of October. But that’s still below where they were before the pandemic when they were consistently above 90 percent.
The Biden administration has already called on OPEC and its allies to do more to combat the elevated energy prices but they have declined to dramatically ramp up production.
Consumer price inflation will likely endure as long as companies struggle to keep up with consumers’ prodigious demand for goods and services. A resurgent job market employers have added 5.8 million jobs this year means that Americans can continue to splurge on everything from lawn furniture to new cars. The supply chain bottlenecks show no sign of clearing. The demand side of the U.S economy will continue to be something to behold says Rick Rieder, chief investment officer for global fixed income at Black rock, and companies will continue to have the luxury of passing through prices. Megan Greene, chief economist at the Kroll Institute suggested that inflation and the overall economy will eventually return to something closer to normal.