Published

November 15, 2021

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Current Inflation

  • Consumer Price Index (CPI): Rose 6.2% on annual basis in October. This is the highest it has been since 1990.
  • Food prices rose 5.3% annually.
  • Energy prices rose 30% over the year, with gas rising 50%.
  • Core prices, excluding food and energy prices rose 4.6% annually in October.
  • Wages rose almost 5% in October, but even with that strong growth, consumers’ buying power is declining because prices are rising faster.

The “Build Back Better” Reconciliation Bill

  • Over the next year plus, the reconciliation bill will increase inflationary pressures because of its deficit financed spending, transfer payments and tax cuts.
  • Based on the seven budget estimates released through 11/13 by the Congressional Budget Office and the Joint Committee on Taxation, the reconciliation will increase the deficit by a net $122 billion in 2022. This number will grow as the remaining cost estimates are completed.
    • This understates the inflationary impact given that the bill includes at least $153 billion in transfer payments and tax cuts for individuals in 2022. This will fuel greater consumption, pushing inflation even higher.
  • “It will make the labor market even hotter and create even more price pressure,’’ – Ethan Harris, head of global economics research at Bank of America (Bloomberg)
  • The passage of Build Back Better would raise the inflation rate from 3.8% to 4% in 2022. – Analysis by Mark Zandi , Chief Economist, Moody’s AnalyticsSee Table 3. (Note: this likely understates the impact given that the estimate was made before the inclusion of $50 billion in additional tax cuts in 2022.)
  • “…the House bill as currently drafted will add ~$200 billion to next year's deficit alone. I don't see how we can do that when inflation is 2-3x our target.” – Ben Ritz, Director of the Progressive Policy Institute’s Center for Funding America’s Future (Twitter)
  • “Right now, anything that expands aggregate demand is not warranted, not advisable. The economy seems to be operating pretty close to its capacity constraints.” – Michael Feroli, Chief U.S. economist for JPMorgan Chase (Bloomberg)
  • "[Build Back Better] is more likely a small positive for inflation in 2022.” – Jason Furman, CEA Chair under President Obama (New York Times)
  • Regarding BBB: “On net, I expect inflationary pressures. Why? a) $200 billion/year of upfront borrowing - spending comes way in advance of offsets; b) offsets won't temper demand much - taxes on corporations and those w/ $25m+ of income won't change consumption much; c) slow supply policies.” - Marc Goldwein, Head of Policy, Center for Responsible Federal Budget (Twitter)
  • “I think that the policymakers in Washington unfortunately have almost every month been behind the curve. They said it was transitory; it doesn’t look so transitory. They said it was due to a few specific factors; doesn’t look to be a few specific factors. They said when September came and people went back to school, that the labor force would grow, and it didn’t happen.” – Larry Summers, former Treasury Secretary under President Clinton and President Obama economic adviser (The Hill)