Opinion | Joe Manchin’s Inflation Vindication

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The White House claim that inflation will soon subside would be more credible if it and the Federal Reserve hadn’t been saying this since the spring. Overall prices increased 0.8% in November while the core index climbed 0.5%. These monthly increases are double what they were from July through September.

Democrats chalked up rising inflation in the spring to surging used-car prices, which they said would soon come down. But they’re still up 31.4% over the year and rose 2.5% in November. Inflation has increased because price increases have broadened.

No worries—President Biden assures us price increases will slow as supply-chain pressures ease. Who knows when that will be? In any case, prices won’t decline. The rate of increase may moderate, but many business executives this fall said they planned to raise prices more next year to compensate for rising labor and material costs.

Another White House inflation excuse: Demand for goods has surged during the pandemic as people cocoon and reduce spending on services. This was true earlier in the pandemic. But spending on services has exceeded pre-pandemic levels since June, and service prices excluding rents rose 3.6% in the last year.

The headline CPI may even understate inflation because it low-balls soaring housing costs. It shows rents rose a mere 3% in the last year while owners’ equivalent rent rose 3.5%. Yet real-estate sites are reporting double-digit increases in rents and housing prices, exceeding 20% in many Sun Belt metro areas.

For too many Americans, inflation is eroding wage gains. Average hourly earnings after inflation for all employees declined 0.4% in November and have fallen 2.7% so far this year. This hurts low-income workers more since they have less cushion to afford necessities that are rising in price. They also spend more of their incomes on energy, food and rent.

Workers have noticed their wages aren’t keeping pace with inflation and are demanding more pay. See

Deere

& Co.’s recently ratified collective-bargaining agreement that provides generous wages that will be adjusted quarterly based on cost-of-living. Rising prices will fuel higher wage demands that will further embed a wage-price spiral.

The budget implications are serious even without the BBB bill. The Congressional Budget Office’s baseline budget last month showed the U.S. will spend $5.9 trillion in fiscal 2022, which began Oct. 1. Entitlements get an automatic inflation increase, and the rest is adjusted under a “current services” baseline that includes inflation. Factor in 6.8% inflation and spending would rise by $400 billion even if Congress doesn’t pass BBB.

According to CBO, the bill’s aggregate outlays will be spread over the course of the decade, with the 2022 deficit impact in the range of 0.6% of GDP. Treasury Secretary

Janet Yellen

says this “modest near-term net deficit impact should not lead to economic overheating.” But most spending in the bill that is set to phase out will ultimately be made permanent.

The Joint Committee on Taxation and CBO estimate that the expanded $3,600 child tax credit, which lasts only one year in the bill, will alone cost $1.6 trillion over 10 years. That’s nearly all of the $1.75 trillion that

Sen. Joe Manchin

has said is his 10-year maximum. The Committee for a Responsible Federal Budget has estimated that making all the bill’s temporary provisions permanent would cost nearly $4.7 trillion. The expanded welfare state won’t be transitory.

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The causes of all this are clear: Democratic spending spurred a surge of demand at the same time supply was constricted by the pandemic and labor shortages caused by government incentives not to work. This will get worse with BBB’s taxes and regulation.

Jerome Powell

and the Fed contributed by cheering on this excessive spending and keeping an historically easy monetary policy long after the pandemic economic emergency had passed.

This inflation is exactly what Mr. Manchin warned about this summer, and he’s been vindicated. He should follow his instincts and shelve BBB for now, and make clear that before any revival next year it has to be honestly scored for its real spending burden. This would also be better for the Democratic Party and Mr. Biden, who now own the inflation that has occurred on their watch.

The Fed, which is behind the curve, will have to accelerate its bond tapering and rate increases. Tighter money carries risks. But letting inflation gain more momentum will make the policy correction even more difficult and the squeeze on the American standard of living worse.

Correction: A previous version misstated bond tapering policy by the Fed.