Embarking on a New Mission: Save America. Kill Inflation.

The culprit at this point is the Fed. We are in the midst of a price-wage spiral — meaning, prices are going up so fast that the workforce must demand higher wages. 

The Labor Department said February 10, 2022,  that consumer prices jumped 7.5 percent last month compared with a year earlier, the steepest year-over-year increase since February 1982. AP/Marta Lavandier

The inflation numbers came in much stronger than expected today, rising 6 percent in January and 7.5 percent over the last 12 months. Over the past three months, the CPI has hit 8 percent at an annual rate, suggesting price increases are getting worse, not better.

Grocery prices are up 9.4 percent over the last three months at an annual rate, 7.4 percent for the year.

Electricity prices are up 21 percent over the past three months and gasoline is up 21.7 percent. Overall, energy is up 18.3 percent for the past three months. 

Clothing prices are up 12.3 percent.

If you’re part of a hard-working, middle-class, blue-collar family, the inflation tax is hitting you hard.

For production and non-supervisory workers, wages have increased 6.9 percent over the past year but prices are up 7.5 percent.

So, the harder you work, the less you’re taking home. This is a very serious problem. And there is no end in sight. 

We’ve saved America by killing the bill, but now there’s a new mission: Save America. Kill Inflation. 

Right now, there is no action on the horizon that will kill inflation.

The culprit at this point is the Federal Reserve. We are in the midst of a price-wage spiral — meaning, prices are going up so fast that the workforce must demand higher wages. 

It’s not the workers’ fault; it’s the government’s fault. There’s far too much federal spending that is still in the system, enabled and accommodated by vastly too much Federal Reserve money creation.

The Fed’s balance sheet — that is the raw material for money supply growth — has increased by $5 trillion in the last two years. Unprecedented. 

In short, the central bank has been purchasing all those bonds from Uncle Sam’s massive deficit spending.

So, using a three-year smoothing average annual rate for the M2 money supply, it has moved from 5 percent growth to 14 percent growth in a couple years. We have not seen anything like this since the 1970s,

Additionally, with all this excess money creation by the central bank, an index of commodity prices has increased by 70 percent. We’ve never seen anything like this. 

So, government spending, Fed bond purchases, money supply gains, commodity price explosion: It’s not just a few prices. It’s virtually all prices that are going up. 

That is a monetary phenomenon. That’s what’s taxing the middle-class and the lower incomes. Save America. Kill Inflation.

The president continues his misguided confidence in his treasury secretary, who keeps saying inflation will drop by 2 percent by year’s end. 

No, it won’t. 

Monetary policy changes work with long and variable lags. It takes two or three years to remove the punch bowl. Today’s inflation was baked into the cake in 2020 and 2021, and it continues here in early 2022.

The Fed continues to buy bonds. It is fueling more money growth and more inflation.

By the way, the commodity price explosion indicates how much your money’s value has declined. Commodities are a good benchmark for dollar value. With prices exploding upward, your dollars are going down. 

A senior administration official today pointed to the Fed’s independence. That’s a good thought: The presumption is, leave the Fed alone and it will take care of business.

Why, though, is the White House nominating far-left, woke radicals like Sarah Bloom Raskin and Lisa Cook? They’re worried about climate change and left-wing social policies, not inflation. That’s a big problem.

Forty years ago, President Reagan worked with Paul Volcker to vanquish inflation. Unfortunately, I don’t now see a Reagan and I don’t see a Volcker. Do you? Save America. Kill Inflation.  

________

From Mr. Kudlow’s broadcast on Fox Business News.


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