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The Morning Dispatch: Inflation Pains
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The Morning Dispatch: Inflation Pains

Wages are up but so are prices, hampering overall economic confidence.

Happy Monday! Congratulations to President Joe Biden, who over the weekend lived out Declan’s dream of having the pope tell him that he is a “good Catholic.”

Quick Hits: Today’s Top Stories

  • The Food and Drug Administration on Friday authorized Pfizer/BioNTech’s COVID-19 vaccine for children ages 5 through 11, and the Centers for Disease Control’s Advisory Committee on Immunization Practices will meet this week and vote on a formal recommendation. Moderna, meanwhile, said Sunday that the FDA will “require additional time” to review its vaccine for 12- to 17-year-olds and determine whether it is tied to an increased risk of myocarditis.

  • Secretary of Homeland Security Alejandro Mayorkas issued another memo on Friday attempting to terminate the Trump administration’s “Remain in Mexico” immigration policy—or Migrant Protection Protocols (MPP)—after a federal judge ruled in August that Mayorkas’ previous efforts violated the Administrative Procedure Act. “I recognize that MPP likely contributed to reduced migratory flows,” Mayorkas said. “But it did so by imposing substantial and unjustifiable human costs on the individuals who were exposed to harm while waiting in Mexico.”

  • The Supreme Court issued an order on Friday denying a preliminary injunction to a group of health care workers in Maine seeking religious exemptions to the state’s COVID-19 vaccination mandate. Justices Amy Coney Barrett and Brett Kavanaugh joined John Roberts and the court’s three liberal justices mostly on procedural grounds, while Justices Neil Gorsuch, Clarence Thomas, and Samuel Alito dissented.

  • The number of abortions performed in Texas in September—the first month in which the state’s effectively six-week abortion ban was in effect—decreased by approximately 50 percent year-over-year, according to research from the Texas Policy Evaluation Project.

  • G-20 leaders issued a loosely worded joint communiqué on Sunday pledging to “accelerate” their actions to achieve global net zero greenhouse gas emissions “by or around mid-century” and “recogniz[ing] that the impacts of climate change at 1.5°C are much lower than at 2°C.” The leaders also formally endorsed a new 15 percent global minimum corporate tax, though it’s far from guaranteed that each country will succeed in implementing the provision domestically.

  • The Commerce Department announced Saturday that the Biden administration had reached an agreement with the European Union to scale back—but not eliminate—the Section 232 steel and aluminum tariffs first imposed by the Trump administration in an effort to “reduce inflationary pressures” and “alleviate a major supply chain crunch.” Such tariffs remain in place on British and Japanese steel and aluminum, but the Commerce Department said it is “consulting closely” with the countries.

  • The Treasury Department on Friday announced sanctions on a handful of companies and individuals that the United States says “have provided critical support” to Iran’s drone program. American officials said last week they believe Iran was behind a recent drone strike on U.S. forces in Syria.

  • John Sopko—the United States’ special inspector general for Afghanistan reconstruction—issued his quarterly report to Congress over the weekend, lambasting the State and Defense Departments for withholding information for years about the reality in Afghanistan. “The full picture of what happened in August—and all the warning signs that could have predicted the outcome—will only be revealed if the information that the Departments of Defense and State have already restricted from public release is made available,” he said in remarks Friday.

  • Republican Rep. Adam Kinzinger—a vocal critic of former President Trump—announced Friday he will not seek reelection in 2022. Illinois’ Democratic state legislature had advanced a new, gerrymandered congressional map earlier in the week that all but doomed Kinzinger’s already slim chances of holding onto his seat.

  • New York Attorney General Letitia James, a Democrat, announced Friday that she is running for governor. James’ office led the sexual harassment investigation into Andrew Cuomo that ultimately led the former governor to resign.

Inflation Hits a 30-Year High

(Photograph by Xinhua via Getty Images.)

“McDonald’s Raises Menu Prices as U.S. Worker Wages Climb.” 

“Pepsico Warns of Another Price Increase as Supply Disruptions Linger.”

“Chipotle’s Profit More Than Doubles as Chain’s Burritos Get Pricier.” 

“Procter & Gamble to Raise Prices of More Household Goods as Supply Chain Costs Bite.”

“U.S. Companies Bet Shoppers Will Keep Paying Higher Prices.”

If you’ve been reading business headlines—or just shopping—you likely won’t be surprised to hear that, by one measure, annual inflation is at its highest level since the beginning of the Persian Gulf War in January 1991. According to the Bureau of Economic Analysis (BEA), the personal consumption expenditures (PCE) price index increased 4.4 percent year-over-year in September, and 0.3 percent from a month earlier. Even stripping out more volatile food and energy prices—which increased 4.1 percent and 24.9 percent from last year, respectively—the core PCE price index was up 3.6 percent year-over-year.

U.S. consumers amassed record savings over the course of the pandemic, and are raring to start spending again in an increasingly post-pandemic world. But manufacturers and businesses—dealing with a challenging combination of worker shortages and supply-chain hiccups—are struggling to keep pace, resulting in both shortages and higher prices.

“We simply have too much demand chasing too little supply,” Brian Riedl, senior fellow at the Manhattan Institute, told The Dispatch. “Washington has pumped in so much stimulus—through both fiscal policy and the Federal Reserve—that it’s outstripping what our economy can produce, particularly because of the supply chain issues we have.”

But it’s not just consumer prices that are going up: The Bureau of Labor Statistics reported Friday that overall compensation costs for civilian workers—including wages, salaries, and benefits—increased 3.7 percent year-over-year in September, the fastest rate since the end of 2004. The growth was particularly pronounced in the private sector, where compensation increased 4.1 percent annually compared to the public sector’s 2.3 percent. 

In a vacuum, wages rising is excellent news—both for workers and the economy overall. But the development could feed into a vicious cycle when paired with sky-high inflation, whereby employers pass increased payroll costs onto consumers in the form of higher prices, which in turn prompt employees to ask for additional raises. This phenomenon appears to be playing out in the restaurant industry—particularly with fast food—while price increases in manufacturing have more to do with rising materials and energy costs.

The strange economic recovery has Americans holding some interesting—and conflicting—opinions. Although nearly 3 in 4 respondents in a recent Gallup survey report now being a good time to find a quality job—the highest percentage since the turn of the century—overall economic confidence fell for a fourth straight month to the lowest level since May 2020. The findings track with a mid-October Fox News poll, which found 73 percent of voters rating the economy negatively and 39 percent feeling like they are “falling behind” financially, up from 27 percent in June. Further, 71 percent report noticing products being out of stock, and a whopping 87 percent said they were “extremely” or “very” concerned about rising prices.

Top Biden administration officials have maintained since last spring that inflation will be “transitory,” projecting it to return to a more palatable 2 percent annual level within months as the economy kicks off its COVID-19 rust. But even Treasury Secretary Janet Yellen appeared to be adjusting expectations in an appearance on CNN’s State of the Union last week.

“On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened,” she told Jake Tapper, noting that monthly rates of inflation have fallen somewhat since the summer even if annual rates haven’t. “But I expect improvement by the end of—by the middle-to-end of—next year. Second half of next year.”

“I agree, of course, we are going through a period of inflation that’s higher than Americans have seen in a long time,” she continued. “And it’s something that’s obviously a concern and worrying them. But we haven’t lost control.”

Yellen’s comments may have been part of a broader, administration-wide shift in approach on the issue, as Biden himself has in recent days begun touting a letter from 15 Nobel Prize-winning economists claiming that his multitrillion dollar agenda will actually “ease longer-term inflationary pressures” because it “invests in long-term economic capacity” and “enhances the ability of more Americans to participate productively in the economy.”

Republicans are less convinced. “All [Democrats’ spending is] going to do is cause more inflation,” Sen. Rick Scott said on Fox News yesterday. “Look at what it’s doing to poor families in this country with gas prices up 55 percent. Go to the grocery store, food prices are up. It’s all caused by government spending.”

Perhaps no one, however, is keeping as close an eye on the inflation data as Federal Reserve Chair Jerome Powell. As we wrote to you a few weeks ago, the central bank is facing questions about when it will both taper off its $120 billion in monthly U.S. Treasury bonds and mortgage-backed securities and raise interest rates. Friday’s numbers likely confirmed to officials the process on the former needs to begin sooner rather than later, with an interest rate hike likely coming in early 2022. Powell is expected to hold a press conference on Wednesday. 

Worth Your Time

  • Republican Sen. Josh Hawley unveiled a proposal last week that he believes will “solve” the current supply chain crisis by requiring companies manufacture “over 50 percent of the value” of certain goods in the United States, but Eric Boehm of Reason argues it would make today’s shortfalls permanent. “One must assume that if the lights in his home went out due to a storm, Hawley would respond by declaring electricity to be a mistake and demanding that the government require homes to be lit with candles and gas lamps,” Boehm jests in response to Hawley’s plan. “After all, what is the electrical grid but a complicated supply chain that leaves Americans woefully dependent on production and distribution systems (power plants, substations, and lines) that they do not fully control? Better to produce your own lighting, right? If that means you have to live without television or the internet, well, those are just the trade-offs required to achieve self-sufficiency.”

Presented Without Comment

Toeing the Company Line

  • In Friday’s Uphill, Haley caught up with Rep. Maria Elvira Salazar—a freshman Republican from Florida—about her background as a journalist, the January 6 commission, her Christian faith, and much more. Plus, Harvest has the latest on congressional Democrats’ slow-moving negotiations.

  • Late last week, former President Trump submitted a letter to the Wall Street Journal riddled with falsehoods about the 2020 election. In her latest Dispatch Fact Check, Khaya corrects them. 

  • Jonah’s Friday G-File—like Margaret Thatcher—argues that “the facts of life” are generally pretty conservative. “Societies that try to impose some grand unified field theory of social justice or the common good eventually run into the fundamentally conservative facts of life,” he writes. “The conservative tends to be the person in the room that says some new idea won’t work or is otherwise wrong. From this fact alone, in the great intellectual Olympics of history, conservatives deserve the gold medal, because most truly new ideas are wrong. It’s just a numbers thing. If you say, ‘It won’t work’ to every spit-balled or brainstormed idea, you’ll be right at least 80 or 90 percent of the time.”

  • David’s Sunday French Press uses “horseshoe theory”—the idea that the political spectrum bends like a horseshoe so extremists on both sides end up mirror images of one another—to explore critiques of American classical liberalism. “Post-liberal right and post-liberal left fundamentally prioritize the power of the state over the liberty of the individual,” he writes. “Under their preferred forms of government, free speech, economic freedom, private property, and religious liberty would all be fundamentally transformed and dramatically diminished.”

  • On Friday’s Dispatch Podcast, Sarah and David spoke with Fight for Schools director Ian Prior about critical race theory and a sexual assault controversy in Loudon County, Virginia, schools. Will these issues decide Tuesday’s gubernatorial race?

  • The Dispatch’s Dune podcast finally happened. Tune in to this week’s Ruminant, featuring Jonah, David, Haley, and Jack Butler, and you’ll find the geekiest 76 minutes of content available anywhere on the internet. Why did it take so long for a competent Dune movie to be produced? What did the film get right? Were any elements of the book unjustly left out? And is sci-fi inherently conservative?

  • On the site today, Chris Stirewalt gets philosophical on the evolution of social media and how we were naive about its potential harms. “Social media to many of us seemed initially like at worst a free, fun time waster and just maybe could hold promise for reconnecting a culture that had become increasingly divided and isolating,” he writes.

  • Dalibor Rohac argues that big international summits, like this week’s COP 26, are not an effective way to fight the very real problem of climate change.

Let Us Know

Where is inflation showing up most prominently in your life?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).