Why do we still have lingering inflation? President Biden took to the pages of the Wall Street Journal to explain and defend his economic record. He claimed that “as supply chains continue to unsnarl, company profit margins fall from historically high levels, and rents continue to moderate, inflation should decline further, creating more breathing room for working families.”
The president appears to believe that rising prices create inflation. Instead, the reverse is true. Dollar depreciation is why prices are rising. Alexander William Salter explains that and evaluates the three parts of the president’s explanation.
First, the president argued that supply chains are causing inflation. That might have been partially true during the lockdowns and the supply chain bottlenecks. But what goes up must come down. The COVID-induced bottlenecks have largely passed, but prices are still high.
Next, the president blames corporate profits. That he focuses on what has become known as “greedflation” is not surprising. Blaming the rich and corporations is a frequent mantra for Democrats during an election year. Mr. Salter points to research by economics professor Josh Hendrickson that shows reduced profit margins. That is just the opposite of what the president argues.
What about the president’s comments about rent? Rent is an important part of consumer spending. But from 2020 to 2022, rent rarely rose faster than inflation. You would expect it to be rising faster if it was pulling inflation up.
These three issues are not the major factor for inflation. The increased money supply is the reason. Both the monetary base and the money supply rose dramatically in the last few years. Also, the government ran massive deficits during those years. That’s why we still have inflation today.