Will Biden’s foreign policy undo all the Federal Reserve’s progress on disinflation?
Tiana Lowe
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While higher than the Federal Reserve‘s goal of 2%, March’s consumer price index rose by 5% over the past year, a modest deceleration and less than expected. While core inflation rose 5.6% over the past year thanks to some troubling acceleration in recent months, supply chain solutions to food and energy have driven the best inflation news for a country adjusting to the worst price level hikes in 40 years.
However, these gains may not last long. Although the food blockages resulting from the war in Ukraine are unlikely to reappear, the newly consolidated countries comprising OPEC+ are set to cut a cumulative 1.1 million barrels of oil production today.
THE COMSTOCK ACT IS NO SOLUTION FOR PRO-LIFERS
The Fed is much more pessimistic about current inflation because they intentionally exclude the volatile categories of food and energy from their favorite estimates. They see that core CPI in the past three months rose by 5.1% on an annualized basis compared to 4.7% in the past six months. Hence, the Fed will likely continue to raise interest rates even as the average person feels a little relief. But rising energy costs could undo all of that.
Consider the overall CPI basket and how various categories of everyday spending are weighted. Overall energy costs constitute 7% of the total basket and gasoline half of those energy costs. Well, over the past year, overall energy prices are down 6.4% and gas down 17.4%. Not only would a rise in gas prices undo the downward progression of headline CPI as a number, but increased energy costs are always regressive, as lower-income earners use a disproportionate share of their incomes on gas and electricity relative to the wealthy.
So why exactly is OPEC+ cutting supply? In part, the blame does indeed rest with the foreign policy of President Joe Biden.
Recall that the president campaigned for the Democratic Party’s nomination by blasting Crown Prince Mohammad bin Salman to earn points from Jamal Khashoggi fans in the press, then ignored the de facto Saudi Arabian leader entirely for the first year and a half of his presidency, and now, after the alienation has brought consequences, has begged the crown prince to keep up oil supply while crippling our own domestic output, which is still producing 1 million barrels of oil per day fewer than before the pandemic. Saudi Arabia’s cut makes up 1% of the world’s total daily supply and more than half the total decrease in supply.
But Biden’s folly is not just undoing the Trump-era drilling and licensing policies or failing to court the crown prince. The OPEC+ news came just two weeks after news broke that Saudi Arabia is in active talks with Beijing to accept yuan for its oil exports. Meanwhile, China brokered a rapprochement between Saudi Arabia and Iran, whose oil exports reached an all-time high at the end of last year thanks to its alliance with Russia.
Rather than continuing his predecessor’s push to realign Middle East power away from Iran and toward Saudi Arabia and our more liberal allies in the region, Biden has let the worst human rights violators on the planet not just coalesce around each other to profit from wars and undermine democracy but also to gouge the American consumer in the process.
The prices of the CPI basket are still steadily soaring, with shelter and food costs up more than 8% over the past year, electricity up 10%, and services up 7%. If those oil prices come roaring back as they did last summer, it’s not just the Fed that will be fearing the coming pain of inflation. Consumers themselves may directly be feeling a redux.