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What's causing inflation


Right now we are all paying quite a bit more for pretty much everything. And, yeah, when gas or food or housing gets too expensive, people get angry, right? And they want to know who or what exactly is to blame for this inflation. Well, that depends on who you ask.


UNIDENTIFIED PERSON #1: Labor shortage - that's been driving up wages 48%.

UNIDENTIFIED PERSON #2: Demand for goods and services that outpaces supply.

UNIDENTIFIED PERSON #3: It's the Democrats. It's AOC. It's Bernie Sanders. You know, it's the Democrat Congress.

UNIDENTIFIED PERSON #4: Supply chain problems is the No. 1 source of inflation.

STEVE SCALISE: It's Joe Biden's policies that are creating these dramatically higher prices.

PRESIDENT JOE BIDEN: We're going to make sure that everybody knows Exxon's profits. Exxon made more money than God this year.

CHANG: All right. Let's fact-check these claims about inflation with Josh Bivens, director of research with the Economic Policy Institute. Welcome.

JOSH BIVENS: Thanks for having me.

CHANG: Thanks for being with us. OK, can we start with the president right there, what we just heard him say about oil companies? I mean, basically, what Biden is saying is that these oil companies and other businesses are jacking up prices more than they need to to make up for higher expenses due to, say, like, supply shortages. Is there data to back up that claim?

BIVENS: Yeah. I mean, especially for kind of the first year of the inflationary shock, basically from, like, very early 2021 to the end of 2021, if you track profit margins, those profit margins got much fatter, and they actually reached historically high levels by the end of 2021. So definitely the rise of profits definitely is a big part of why prices jumped in 2021 especially.

CHANG: Is it connected to inflation or it's partly causing inflation, these increasing profit margins?

BIVENS: I think it's fair to say they're a cause. I mean, if it was just the case that they were passing on any cost in their own production to customers, you would say that's not really their fault. They're just taking the costs and passing them on. They're not just passing them on. They're also increasing their profit margins. So they're taking whatever increase in costs they're experiencing, they're adding to it, and it turns out they're adding enough. The profit margins were getting so much fatter, the profits were contributing a really historically high share to the growth in prices in 2021.

CHANG: Interesting. OK. Well, another claim is that wage increases are also helping drive inflation, the theory being employers are paying employees more, partly because of more labor organizing. And as a result of that, businesses have to raise prices. How feasible is that theory?

BIVENS: In my mind, mostly not feasible. So it's true that, like, if wages had just not grown at all over the past 15 months, inflation would be a bit lower today. But it turns out, wage growth has always been lagging far behind overall inflation. So it means, on the one hand, workers' real wages, their inflation-adjusted wages, they're actually going down. And also every time wage growth comes in beneath overall inflation, it's actually serving as an anchor on inflation. It's actually trying to drag it back down to a more normal level. And over the entire course of the past 15 months, wage growth has been coming in slower than overall inflation. It's one of the things in the economy that has seen less growth than everything else that is connected to overall prices.

CHANG: Well, there's also blame directed at the federal government and all the federal spending on pandemic relief, like stimulus checks, small business loans, child tax credits, pauses in student loan payments, et cetera. The argument is, I understand, like, if there's more money out there to be spent, there's more demand and prices will rise. Is there truth in that?

BIVENS: Inflation is global. There's been an acceleration of core inflation across every advanced economy, even the ones that did very, very little fiscal relief. And so I think the evidence linking specific Biden-era policies to the surge in inflation is just really, really weak.

CHANG: And we should know, like, there's also been a war going on in Ukraine. It seems like that has had a noticeable effect - right? - like, especially for things made or grown or found in Russia and/or Ukraine, right?

BIVENS: Totally. In terms of household budgets, oil and food is just dominating everything else in terms of the pain they're seeing. And those are shocks that are big enough that they do set off ripple effects. I mean, when oil and food prices just go through the roof, there is a scramble among other people in the economy to try to protect themselves. So workers really do try to get higher wages in response to that to hold themselves harmless. They're not fully successful, but wages do go up a bit. And so I think it's mostly the shocks, the pandemic and war shocks and some ripple effects. I don't think it's just a consistent set of policy mistakes that we need to unwind. I think what we need to have happen is the shocks need to stop.

CHANG: That's what I wanted to ask you. I mean, because if you step back and look at this broader picture, like you said, inflation's a global problem. Meanwhile, there is a war in Ukraine. Meanwhile, there's also a pandemic. There are also trade wars going on. I mean, given all of these different factors, these shocks, as you say, are U.S. companies or the U.S. government really making inflation particularly worse here compared to elsewhere in the world?

BIVENS: So I'd say we're - like, if you line up, like, the 30 richest countries in the world and look at what has happened to inflation there over the past 15 months, we're, like, in the top third. So it's been a little worse here than, like, on average or the median, but we're not an outlier. And so we're actually totally in the range of normal. And I think the reason for that is what you just said. A lot of the shocks you just mentioned, they're not U.S.-specific. They're not U.S.-specific policy failures. They are shocks that have hit global markets, and we have been caught up in that.

CHANG: Josh Bivens, research director at the Economic Policy Institute, thank you very much.

BIVENS: Thank you. Transcript provided by NPR, Copyright NPR.

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