Historic inflation shows no sign of slowing down. On Friday, the Commerce Department announced that the personal-consumption expenditures index accelerated in August. Core PCE, which strips out volatile food and energy prices, rose by 4.9% over the last year, an increase from last month and more than analysts' expectations. The PCE is the Federal Reserve's favorite inflation gauge because it considers actual consumer spending.
Historic inflation is causing consumers' real wages and living standards to meaningfully decline. But small businesses like mine are also one of the biggest victims of high inflation. Wholesale prices are actually increasing even faster than the headline inflation rate, corroding our already-slim profit margins. For instance, material and plating costs have increased anywhere from 45% to 68% over the last year.
Since customers are price sensitive -- especially today as inflation reduces their real wages -- it's not possible to pass along this inflation in the form of price increases. It's no surprise that small businesses tell pollsters that inflation is their biggest threat.
The Fed is doing its part to reduce prices by aggressively raising interest rates. However, it is still getting no help from Washington, which continues its reckless spending that fuels the inflationary fire. The Biden administration's student loan bailout is just the latest example. The nonpartisan Congressional Budget Office announced last week that this move will cost more than $400 billion, leading to more money in the economy chasing the same amount of goods.
A different direction in Washington is urgently needed to tame the inflation beast. I recently participated in the release of the American Small Business Prosperity Plan, crafted by Job Creators Network and former Republican Speaker of the House Newt Gingrich. Its eight commonsense, bipartisan policy principles will help boost small businesses, reduce escalating prices, and jumpstart economic growth.
The Prosperity Plan calls for the end of reckless federal spending that's not only boosting inflation but also threatening the nation's solvency. The Biden administration has unnecessarily spent several trillion dollars that has devalued the currency already in existence. Balancing the budget will help the Fed's efforts to bring prices back under control.
The plan also calls for greater domestic energy production, which the Biden administration has inexplicably stymied. Despite historic energy prices, the Biden administration has issued fewer oil and gas leases than any president in the last 76 years. Boosting the domestic energy supply can bring down outrageous gas prices that are an input cost in nearly every aspect of the economy.
The plan also provides small businesses with tax and regulatory certainty, allowing us to manage our other costs not related to inflation.
It makes the Tax Cuts and Jobs Act permanent. These tax cuts, which took effect at the end of 2017, helped spur one of the best economic environments in modern history in 2018. The tax cuts ushered in a 20% small business tax deduction and immediate expensing among other pro-growth provisions.
The ensuing savings provided my manufacturing business with the funds needed to give bonuses and pay raises to my employees and cover 100% of their healthcare costs. They also allowed us to invest in new machinery and hire new employees to operate it.
Unfortunately, without Congressional action, these tax cuts begin expiring after next year. Making them permanent can allow small businesses to continue to benefit.
The Prosperity Plan would also exempt small businesses from new regulations. The cost of burdensome new labor and environmental rules disproportionately impact small businesses, which don't have the ability to sidestep them like our big business competitors.
Such bold, free-market action is exactly what the country needs right now. By empowering small businesses rather than government, entrepreneurs can expand and increase the supply of goods and services needed to bring prices down.
The Prosperity Plans' other provisions will reduce healthcare costs, overcome labor shortages, improve credit access, and address ongoing supply chain turmoil. Unfortunately, the Biden administration seems to be working at cross-purposes to these goals. It refuses, for instance, to end the Covid-19 "national emergency" that continues to artificially depress the labor force.
The Prosperity Plan helps small businesses help the country reverse runaway inflation and increase economic opportunity for all. The next U.S. Congress should use it as a playbook.
Nicole Wolter is the president of HM Manufacturing and a partner of Job Creators Network Foundation.
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