President Biden has a Christmas present for President-elect Trump. And it’s not a lump of coal, since Biden has largely regulated that energy source out of existence.
No, Biden’s Christmas present for Trump is “sticky inflation” — a condition where the inflation rate stops falling and may even rise slightly. It’s not something Trump wanted — nor the voting public, judging by the looks of the recent election. But Biden’s big-spending ways have ensured that the nation’s initial progress in inflation reduction is flattening out, keeping inflation rates higher than Federal Reserve Bank officials prefer. Merry Christmas!
The Bureau of Economic Analysis reported Wednesday that the Fed’s preferred inflation gage, the Personal Consumption Expenditures index, ticked up by 0.2 percentage points last month, the second straight month showing a small increase.
To understand why, we need to understand the primary cause of inflation. As economist Milton Friedman once observed, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” When the government is borrowing and spending a lot of money, the quantity of money goes up, which puts upward pressure on inflation. And the government under Biden has been spending a lot of money.
In responding to the economic problems created by the pandemic, Washington cranked up spending in Trump’s last year in office (2020) and Biden’s first year (2021). Those budget deficits rose significantly — $3.1 trillion and $2.8 trillion, respectively — which likely fueled inflation.
But in Trump’s first three years in office, before the pandemic, his deficit spending totaled $2.4 trillion. For Biden’s last three years in office, after the pandemic was subsiding, his total deficit was nearly $5 trillion — twice Trump’s first three years. In other words, Biden barely scaled back government spending even after the pandemic was largely behind us.