AUGUSTA, Maine — Ahead of the U.S. Bureau of Labor Statistics Friday release of the November Consumer Price Index data on Friday, December 10, the Maine Center for Economic Policy is providing the following context.
Last month, the Bureau of Labor Statistics (BLS) released data which showed the Consumer Price Index for All Urban Consumers (CIP-U) increased at 0.9 percent in October and 6.2 percent over a 12-month period. The largest increases were in energy, including gasoline and heating oil.
This led to calls to delay or reduce the scope of federal action in helping to grow the economy, address the impacts of the COVID-19 pandemic, and build social infrastructure. These assessments are misguided for the following reasons:
- Inflation is not unique to the United States. It is happening in countries across the world due in part to supply-chain bottlenecks resulting from COVID-19 pandemic complications.
- Fuel prices are dropping and are projected to be significantly lower in 2022, though it may not show up in the data for November.
- The U.S. Energy Information Administration (EIA) forecasts that gas will average $3.13 per gallon in December and $2.88 gallon on average in 2022, compared with $3.39 per gallon in November. One reason for the drop in prices was the release of 50 million barrels of crude oil from America’s Strategic Petroleum Reserve.
- US natural gas futures were down this week to $3.657 per million British thermal units (MMBtu) — more than 40 percent below October’s peak. The EIA projects natural gas prices to decline from a $5.05 per MMBtu in November to an average of $3.98 per MMBtu over the course of 2022.
- Corporations are reporting higher profits than at any time since 1950.
- Taking advantage of tax loopholes, massive corporations rake in record profits and keep prices high. And some corporations are taking advantage of these global issues, using the cover of inflation to raise prices unnecessarily and boost their bottom line.
- Nearly two-thirds of the biggest US publicly traded companies reported higher profit margins through mid-November than they did over the same stretch of 2019, the Wall Street Journal reported. Nearly 100 of these large corporations have reported profit margins that are at least 50% above 2019 levels.
- “The agenda of corporations is clear. They’ll stop at nothing to keep Congress from passing the Build Back Better plan which closes loopholes that have made it possible for them to avoid paying what they owe in taxes,” said MECEP President & CEO Garrett Martin. “Build Back Better would use those funds to invest in communities in ways that create greater stability and speed recovery. Let’s not let the same corporations — who are using the inflation narrative to pad their profits — keep American families and small businesses from getting the support they need to keep moving forward together.”
- Rising wages and federal relief are mitigating the impact of inflation.
- Because of federal recovery efforts, private sector wages in Maine have gone up close to 10% and tens of thousands of Maine families are seeing significant increases in household incomes because of the child tax credit and other policies.
- MECEP Economic Policy Analyst James Myall reports:
- According to data from the Census Bureau’s Household Pulse Survey, the share of Maine adults who found it difficult to meet their usual household spending needs has barely changed between early 2021 and early October, despite inflation.
- The American Rescue Plan, passed in March, provided one-time economic relief payments to nearly all Americans. Most parents have been receiving monthly child tax credit payments of up to $300 per child. Other programs such as heating assistance, rent relief, expanded food assistance, and the now-expired expanded unemployment benefits also helped get money to Mainers — in amounts that in many cases far exceeded the impact of the increased cost of goods and services.
- The need for companies to hire workers has led to a significant increase in wages, especially for many workers with low wage in service industries. As a result, many workers in these industries have seen their wages rise faster than inflation, even with inflation at elevated levels.
- Federal legislation — including the Build Back Better Act, which is still being negotiated — will ease inflationary pressures.
- Build Back Better will create jobs and make it easier for workers to keep them, expanding the economy’s capacity to produce goods and services in the medium- to long-term and reducing the risk of inflation.
- MECEP Economic Policy Analyst James Myall reports:
- Existing federal relief programs have protected Mainers from the worst of the price increases, and future legislation promises to expand economic capacity and remove the underlying causes of inflation.
- Since the current period of inflation is largely driven by problems in supply, one way to address the problem is to increase supply. Several aspects of President Biden’s Build Back Better agenda will do just that.
- Because both bills spread their investments over many years and are almost fully paid for by tax increases on the wealthiest Americans, they will not in themselves contribute greatly to rising inflation. While the rising cost of living may appear worrying at first, it is important to keep the wider economic context for families in mind.
- “The best way to help families cover costs is to pass Build Back Better, and during this time of economic uncertainty, families need this help more than ever to meet everyday challenges and make ends meet,” said MECEP Economic Policy Analyst James Myall. “This holiday season and beyond, Build Back Better will help ensure every family has food on their plates, a roof over their heads, the medicine they need, child care and school supplies for kids. It’s truly a gift when all Maine people and communities have the resources to thrive.”
- MECEP Economic Policy Analyst Arthur Phillips reports that a November Moody’s Analytics assessment of the projected macroeconomic impact of the Build Back Better Act found the bill would have significant positive effects on economic growth and employment, improve labor force participation, and could ease inflationary pressures — while failure to pass the bills would prolong the economic recovery for years.
- “When all households and businesses pay their fair share, the result is robust revenue,” said MECEP Economic Policy Analyst Arthur Phillips. “With robust revenue, we have the resources to improve lives and can choose to fund critical supports and life-changing opportunities. Otherwise, thousands of Mainers in need stand to lose out on. The choice is ours.”