I asked my AI assistant to explain the causes of inflation in the last three years – essentially the Biden administration. Take a look at the answer. It seems pretty accurate to me.
To many people Biden gets the blame for what they see as a lousy economy. Of course, every president gets blamed for whatever happens on their watch, right or wrong – the buck stops here and all that.
However, if you take a close look you will see global factors, weather and most importantly the actions individuals take are key drivers. In this case, save like crazy, then spend like crazy.
Then there is response lag which is a delay in the impact – months or even years – of monetary and fiscal policies. Of course this means actions taken by one administration may well impact the next.
What caused inflation
The inflation we saw in the last three years (2021-2023) was driven by a complex mix of factors, with no single cause being the sole culprit. Here’s a breakdown of the main contributors:
Supply and demand imbalances:
- Pandemic disruptions: The COVID-19 pandemic caused major disruptions to global supply chains, leading to shortages of raw materials, labor, and finished goods. This mismatch between supply and demand pushed prices up.
- Shifting consumer demand: During the pandemic, demand for goods like furniture and electronics surged, while demand for services like travel declined. This shift put additional pressure on specific supply chains.
Energy and commodity price volatility:
- Global energy markets: The price of oil and other energy sources fluctuated significantly, impacted by factors like geopolitical tensions and production disruptions. This translated into higher gasoline and energy costs for consumers.
- Food prices: Adverse weather events and disruptions in agricultural supply chains contributed to rising food prices globally.
Monetary and fiscal policy:
- Government stimulus: In response to the pandemic, governments around the world implemented large-scale fiscal stimulus packages, injecting significant amounts of money into the economy. While intended to support businesses and individuals, this increased money supply could have contributed to inflationary pressures.
- Low interest rates: Central banks kept interest rates low to stimulate economic growth during the pandemic. While this helped businesses and consumers access credit, it could also have fueled asset price inflation and potentially contributed to higher prices overall.
Wage pressures:
- Tight labor markets: As the pandemic eased, job openings outpaced the number of unemployed individuals, leading to a competitive labor market. This put upward pressure on wages, which businesses sometimes passed on to consumers through higher prices.
It’s important to note that the relative importance of each factor varied over time and across different regions. While inflation peaked in 2022 for many countries, it has started to decline in 2023 as some of these factors, like supply chain disruptions, begin to ease. However, continued tight labor markets and geopolitical tensions remain potential risks to price stability.
QUINNSCOMMENTARY 
I love these comments: such a variety of informed and less-informed opinions! I think it’s best to use your own experience in judging how inflation is affecting you.
I have been making do with less and letting the inflationary trend blow right over me.
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It could be worse, may be that’s why they call it a black swan…
https://www.pewresearch.org/wp-content/uploads/2022/06/FT_22.06.08_GlobalInflation_2.png?resize=465,1536
Speaking of buying votes, it’s not pick on Trump day, but its also not “don’t pick on Trump day”, so…
Stimulus checks to bear Trump’s name in unprecedented move | AP News Apr 15, 2020
If it was so important to him, they should have shipped a truckload of Charlie’s to the White House so he could sign them all personally. That would be unprecedented.
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Charlie’s s/b Sharpies.
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Can you now ask your ChatAI why was inflation so low under Obama and then Trump?
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Look at the factors and see which applied during their tenure. If Trump had won a second term inflation would still have been high.
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And you would have been first in line to blame him!
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Have you seen me blame him for anything except his behavior, bullying and lack of understanding of economics, the global nature of life and the Constitution? I have said that no president can be blamed for the economy because they have little impact.
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You don’t know that. You can assume that but you don’t know for a fact.
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Actually it is a fact about presidents and inflation. There is also a natural lag time that can transfer impacts from one administration to the next.
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If that makes you feel good, you go with it!
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Just look it up, you think I make this up? Any President has limited impact on inflation, very limited. There are too many uncontrollable causes.
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The future of inflation is even more bleak.
If Biden, $2+ T per year already in the queue in each of next ten years, growing debt to $50+ Trillion. Giving out money, directly or indirectly, makes fed job to control inflation impossible. Demand pull inflation. Interest rates to rise, worsening deficit.
If Trump, well, he won’t be all that happy to wring inflation’s neck as his departing legacy – recession, Great Recession, depression anyone?
What does he propose to lower inflation – Maybe an embrace of deregulation, a la 2017, massive increases in energy production and export?
What does he want that will increase inflation? Tariffs, mass deportation of illegals working for low wages, low interest rates on housing that are likely to drive prices higher.
Not good
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A couple of quick points here. You are correct about policy proposals from Trump that if enacted, would cause higher inflation if he is elected. But to pass these proposals, he would need a majority in both houses of Congress and probably have to nuke the filibuster as well.
As for Biden, the same holds true, i.e. the President cannot “give money away”, i.e. Congress has to pass the budget. I lot of people, myself included, have been confused about the Student Loan Forgiveness program, which is actually a Congressional law that was enacted long ago but had been administered poorly by the previous administration. But in the larger picture, it means that Biden also can’t enact spending increases either without Congress.
Finally, inflation has already pulled back a lot, almost to normal levels. I don’t think this has as much to do with the Inflation Reduction Act or raising interest rates as it has to do with supply chains getting back to normal after the pandemic and also America’s self sufficiency in energy, which has grown during all three of the last administrations.
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Student loan forgiveness confused a lot of people because Biden sought to waive repayment and have Congress come along and budget the money afterwards. There was an existing law that allowed for forgiveness in certain circumstances but Biden wanted to stretch it to the limit. I quit following the issue but apparently it didn’t work because I don’t think the big handout happened. Just because a law exists doesn’t mean you should torture it and twist it to heft what you want.
If inflation is nearly back to normal, there is no need for the FED to do anything further. But we don’t know exactly where it is and they don’t know either so the inflation watch goes on.
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Thanks.
My point is neither Biden nor Trump will take the hit necessary to reign in federal spending. Both are only interested in increasing spending – which will worsen the annual deficit, increase the federal debt, and, sooner or later, even if inflation doesn’t kick back up, prompt the Fed to raise interest rates in order to convince folks to continue to buy treasury securities. That, in turn, crowds out private investment and capital formation. And, when certain temporary corporate tax preferences expire after 2026, expect to see price increases/adjustments to offset the loss of preferences.
With respect to Congress, whether it is Bush II, Obama, Trump or Biden, Congress have been willing co-conspirators in spending more. How else could our federal government get to $7+ Trillion a year in spending, more than three times what we spent just 20 years ago.
Total (in Millions $)
Year Receipts Outlays Surplus or Deficit (-)
2001 1,991,082 1,862,846 128,236
2024(est) 5,036,384 6,882,738 -1,846,354
So, our annual deficit is as large as total federal spending 20 years ago! And, federal spending is now more than three times what it was 20 years ago!!!
In terms of inflation, the rate of the changes in price, as measured by the CPI has declined, but the rate of change is still 50% higher than pre-Biden days – 5 years ago. For calendar year 2018, the CPI increased 2.1%. In 2023, the CPI increased 3.4%. And, importantly, prices are up 22% over the past five years, and the 2023 increase, in nominal dollar terms was almost twice the increase in 2018 (190% higher).
That’s what everyday Americans see, feel and experience. Some call it sticker shock.
I went to Krogers earlier today. I paid $2.99 for a loaf of bread that I paid $1.99 for pre-pandemic (a 50% increase). I have a daughter who has food allergies. She is coming home in a week or so. The margarine we have to buy for her only has ~90% of the pre-pandemic volume, but the price has increased from $4.25 to $6.75 – same margarine, a 76% increase! The eggs were only up marginally from pre-pandemic (maybe 15%), however, my favorite licorice was up 50% – $2.99 versus $1.99 pre-pandemic. Note: that same bag of licorice was as high as $3.49 just a couple months ago, and I (and probably a few others) stopped buying and eating it.
That’s how most Americans accommodate inflation – we change our buying habits, and we do so with a snap of the fingers, almost unconsciously. If X is too high, move on to Y.
And, of course, the beltway idiots like to tell us that wages have increased commensurate with inflation. And, of course, if you only looked at the raw numbers, you would agree.
According to the St. Louis Federal Reserve Bank, Employed full time: Median usual weekly nominal earnings (second quartile): Wage and salary workers: 16 years and over increased from
$886 to $1,117, or 26%. Sounds great, until you adjust for taxes (taxes are not part of the CPI, imagine that!) Assuming a marginal tax rate of 34% on the last dollar (22% Federal, 3% State, 2% Local, 6.2% Social Security, 1.45% Medicare), that takes a big bite out of that 26% – and that’s without adjusting for other taxes (sales, real estate, use, etc.) https://fred.stlouisfed.org/series/LEU0252881500A
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We’ve not had a single supply disruption, change in consumer demand, energy disruptions, low interest rates, deficit spending over the past 40+ years? I think not.
Food? The price of eggs, beef, cereal, bread, … did chickens stop laying eggs, cattle fail to breed, wheat/oats/rice fail to grow?
What has changed is the size of deficits and debt – adding $22 Trillion, from $12T to $34T in the last 15 years – Obama, Trump, Biden. Some inherited but most deliberate, intentional and STUPID vote buying.
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How many years are supply chain issues going to be the excuse for inflation? Weather is always with us, good or bad. Why doesn’t our AI friend place blame number One on the injection of over 6 trillion dollars in our pockets. This was created out of nothing but thin air, no bonds sold to get it, just add a few digits on the computer screen.
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Of course James 2 has hit on something–inflation is caused by too much money chasing too few goods–the high prices are the symptom–just like a fever is the symptom of something more serious.
Go back to 2008-2009 when QE (quantitative easing) 1 and then later 2 were instituted by the FED–the FED did trillions in QE but they forced banks to boost reserves which means not all that money escaped–we had to save the banks and insurance companies.
But 2020 and ’21 the money supply measured by M 2 took off and we sent checks to our fellow citizens and don’t forget those PPP loans. We (Biden Admin.) showered the country with money and were warned by many including Clinton’s former Treasury Sec. and ex President of Harvard–sure enough inflation arrived right on schedule. Too much $ too few goods.
Remember back to 2015 when the average price of oil was $$59.00 off from $100 average in 2014. German banks were paying negative interest rates and inflation was muted–in fact talk of deflation was prevalent.
If oil prices (as an example) are an issue with inflation it’s funny we had so little inflation. In fact in 2014 the CPI rose by less than 1% with oil averaging $100 a barrel.
The point being that printing up $ causes inflation (see Venezuela right now) and Germany pre-Hitler. My mother-in law worked at a store in Germany after WW 1 and she attests to folks carrying a small basket of German Marks in and leaving with very small amounts of essentials. Prices changed almost daily. They paid reparations to the French by printing up money (marks).
Keep a stable money supply and inflation is not a big worry. Keep those presses rolling and we will have problems.
M-2 money supply will be released this afternoon–will give hint of future inflation—last year M 2 declined by 3%+ and inflation moderated. Let’s hope the Fed can keep it up.
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