Another month has gone by, and Inflation is continuously rising. Last week, the consumer price index saw the steepest increase in over 30 years, jumping to 6.2%. But before anyone relaxes into a feeling that this percentage is low, remember that this is not the real inflation. It’s a number that doesn’t include gas prices and rents. Our real inflation — the percentage you are going to lose this year on all your dollars and dollar-denominated assets — is at around 10%.  

This raises the bar for the Fed’s response — will they finally acknowledge just how serious the inflation is not just for everyday Americans but for the entire economy?  

Americans have had to cope with inflation for months now with higher costs for groceries, heating, gas, and pretty much every item we purchase. And there is no sign that inflation is going to slow down anytime soon. Fed chair Powell himself has resigned publicly to the fact that the price increases are not “transitory.” 

Where could the US inflation rate be heading? 

While the 6.2% inflation is the highest since 1990, let’s zoom out a bit further. 

If President Biden and the Fed don’t rein in inflation soon, by the next inflation report we could find ourselves in the same place we were during the 1970s, as seen in the chart above. Meanwhile, the economy is stalling — economic growth dropped to just 2%, down from 6.7% in the previous period. Things are starting to look more and more like the 1970s’ stagflation. 

One of the drivers behind the rising inflation is the Fed’s money printing, which we discussed in detail here. In short, as I wrote then, 

“Inflation is the loss of purchasing power of each individual dollar because more and more dollars are being created … , diluting the value of the previous dollars in the system. More dollars are chasing after the same amount of goods, so the prices of the goods go up. Inflation robs us blind.” 

The Fed knows this. Heck, every 1st-year student of economics knows this. So, if Inflation is really theft of Americans’ purchasing power, wouldn’t you think our government would want to stop it and protect us? 

This is especially true now when inflation is rising rapidly, and adding more money via stimulus bills and money printing is adding more fuel to the fire. This is the worst time to spend billions of dollars — the last thing we need is more money added to the money supply and our national deficit. Biden, what’s your view on this? 

“Inflation hurts Americans’ pocketbooks, and reversing this trend is a top priority for me,” Biden said in a statement after the release of the latest inflation data. 

What’s in Biden’s infrastructure bill?

But we can question his commitment to fighting inflation since his actions show a different view on inflation and spending: Biden just signed his infrastructure bill into law 

With Biden’s recently approved infrastructure bill, our government will spend another $1.2 trillion. Here are some of the key points of the bill: 

• $650 billion in previously authorized funding for roads and other infrastructure 
• $110 billion in additional investments on roads, bridges, and major projects 
• $108 billion to upgrade electric grid 
• $66 billion on passenger and freight rail 
• $65 billion on broadband internet infrastructure 
• $47 billion for climate resilience 
• $39 billion on public transit 
• $25 billion on airports 
• $21 billion for environmental projects 
• $16 billion on ports and waterways 
• $15 billion to remove lead service lines 
• $11 billion for transportation safety 
• $7.5 billion for electric cars, buses, and ferries 
• $2 billion for underserved rural areas 
• $1 billion to address racial discrimination in infrastructure 

How will Congress pay for the infrastructure bill? 

Lawmakers are claiming that Biden’s bill will pay for itself. However, the Congressional Budget Office finds that the bill will add $350 billion to the deficit and that many of the pay-for provisions won’t raise as much money as Democrats claim. 

How will Congress fund that deficit? Of course, money printing is the first answer that comes to mind. But Biden will not stop at his recent bill,  

In the same statement about his inflation concerns, he urged lawmakers to keep spending: “Going forward, it is important that Congress pass my Build Back Better plan.” 

What will happen to inflation when the proposed plan adds another $1.75 trillion to the economy? Biden and the Fed may pass on answering that question, but you and I know the answer. And you and I will pay for it down the road.