Here’s some disquieting news:
The Consumer Price Index rose 0.4 percent in January, a bigger gain than economists had predicted. Over the last 12 months, the index has surged by 4.3 percent, one of the highest year-over-year rates in decades, the Labor Department said.
The rise was led by increases in the costs of food, gasoline, shelter, and transportation. The so-called core inflation rate, which excludes food and gasoline prices, ticked up 0.3 percent last month.
The core rate is 2.5 percent above its level in January 2007, above the Fed’s recognized comfort zone ceiling of 2 percent.
This is bad for all the usual reasons, but I think it is also worrisome for its political implications. I suspect that higher inflation helps movement conservatism. The reason is simple: when prices are going up, people need more money–quickly. And movement conservatism has a ready answer: we’ll give you a tax cut. Now, of course, the vast majority of the tax cuts are for the super-rich, but under inflationary conditions, that literally doesn’t matter to voters: they need the money.
Movement conservatism gathered steam in the inflationary period of the late 70’s. It’s no accident that Ronald Reagan triumphed in the high-inflation year of 1980. California’s 1978 Proposition 13 property tax cutting initiative wasn’t anything new: it had been proposed and had failed miserably in years previous. The difference was inflation: people needed the money (this was particularly true with the property tax, because people can’t eat their higher house prices).
As economic policy, tax cutting in inflationary times is madness, because it just stimulates demand. But the politics are very clear. And I think that they help conservatives.