The Origins of Bidenflation

image_pdfSave to pdf fileimage_printPrint

This article is about inflation. Specifically, I will look at the first three years of the Biden administration: January, 2021 to January, 2024.[1]

There are three parts of this analysis. First, I’ll take a close look at the energy sector and actions the Biden administration took to help drive up prices. Next will be an analysis of the overall increase in the price level and its major parts from 2021 to 2024. Finally, I’ll dispatch with some of the crazier ideas about inflation.[2] That way, we can explore the origins of Bidenflation.

Executive Summary

Between December, 2020 and January, 2024, the CPI-U rose by 18%. That’s a 5.5% annual rate.[3] Housing, transportation, and food and beverages combined to create about 87% of the overall increase in the CPI.

Inflation and Its SourcesThe Origins of Bidenflation

Inflation and Its Sources (click for larger image)

So why did this happen? As Milton Friedman famously said, “Inflation is everywhere and always a monetary phenomenon.”[4] In the 60 years since he made that claim, the economics profession has learned a lot. We’re now pretty sure that many factors can affect the price level in the short run. But, unless these price level changes are supported by proportional increases in the money supply, the inflation cannot persist into the long run. Those who argue that Bidenflation is caused by supply shocks ignore the increase in the money supply since 2021.

PullQuote01 The Origins of Bidenflation

Between January, 2021 and January, 2024 the money supply (M2) increased 2.4% per year. That sounds reasonable. But it masks an interesting bulge in the data. From January, 2021 to January, 2023 M2 increased 4.8% per year. And January, 2021 to January, 2022 shows an eye-popping 11.6% growth. Here’s the ugly story:

M2 The Origins of Bidenflation

(click for larger image)

It takes about a year for a change in monetary policy to affect the economy significantly. The money growth in 2021 caused 2022 inflation to be 6.4%. That was on top of the 2021 increase of 7.6%. In brief, the massive expansion in M2 during the 2020 COVID pandemic (accompanied by a drop in velocity) should have been contracted as velocity increased. Instead M2 continued to rise. That caused a 14.4% increase in the price level during the first two years of the Biden administration.

The Biden Administration’s War on Fossil Fuels

There’s a meme circulating that summarizes actions the Biden administration took to reduce the supply of fossil fuels.

Biden's war on fossil fuelsThe Origins of Bidenflation

(click for larger image)

Here’s the timeline and a brief discussion of each event.

 The Origins of Bidenflation

(click for larger image)

The table above is in the Excel workbook for this article. Included are three footnotes for directly quoted material.

Clearly energy is a big contributor to this wave of inflation. With that in mind, I took a look at the BLS’s special Energy category in the CPI. Here’s the result. An explanation will follow.

Energy componentThe Origins of Bidenflation

(click for larger image)

Energy contributed 6.17% of the total inflation over the 37 month period. This is normalized so the sum of the percentages for the major groups equals 100%. (The raw total of the eight major item groups was 99.72%. It’s easy to normalize the percentage contribution to these items by proportionately distributing the -0.28 percentage point difference across the eight groups. For details see the Excel workbook, specifically the “CPI weights and contributions” tab. Details of the methodology are in the appendix below.)

But the Biden administration did use one domestic policy to help lower oil prices. No, silly, it’s not encouraging exploration and drilling. Instead, they chose to sell oil from the Strategic Petroleum Reserve (SPR). The SPR was established in 1977. Here’s the description from the U.S. Department of Energy’s “Office of Cybersecurity, Energy Security, and Emergency Response.”

About the SPR

The Strategic Petroleum Reserve (SPR), the world’s largest supply of emergency crude oil, was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program. The federally-owned oil stocks are stored in huge underground salt caverns at four sites along the coastline of the Gulf of Mexico. The sheer size of the SPR (authorized storage capacity of 714 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy.

SPR oil is sold competitively when the President finds, pursuant to the conditions set forth in the Energy Policy and Conservation Act (EPCA), that a sale is required. Such conditions have only existed three times, most recently in June 2011 when the President directed a sale of 30 million barrels of crude oil to offset disruptions in supply due to unrest in Libya. During this severe energy supply interruption, the United States acted in coordination with its partners in the International Energy Agency (IEA). IEA countries released altogether a total of 60 million barrels of petroleum.

The SPR was started in 1975 in response to the massive OPEC oil prices in the 1970s. There are four storage sites, two each in Texas and Louisiana. The physical storage facilities are underground salt domes. Total capacity is 714 million barrels. As of April 26, 2024, there were 366,271,000 barrels stored, about 51% of capacity. Part of the reason for this is the Biden administration’s policy of selling off the reserve. This is their strategic alternative to shutting down a large part of U.S. oil production.

During the calendar year 2022,[5] the net change in the SPR was -226,837,000 barrels. Between January 7 and November 4, the net change was -202,998,000. Early November, 2022, was, of course, a national election with all members of the House running for re-election as well as one-third of the Senate. The Biden administration was trying to keep oil prices low heading into the election. Read the second quoted paragraph above and see if you can identify the relevant emergency.

With that extended discussion of energy, let’s take a step back and look at the forest instead of a single tree.

Inflation and Its Sources

If you really want to understand this section, I urge you to read the appendix first.  And remember the quotation shown below.

Jim Grant Pull Quote The Origins of Bidenflation

(click for larger image)

In other words, increases in the average price level accumulate. Inflation is the first derivative of the price level with respect to time. It cannot accumulate.

Now back to the number-crunching.

We can use the same methodology that we used to evaluate energy’s impact on the CPI to calculate the contributions of each major component. The number-crunching is in the Excel workbook, mostly the first few tabs. Here I’ll focus on results.

The eight major categories of the CPI-U are Apparel, Education and Communications, Food and Beverages, Housing, Medical Care, Other, Recreation, and Transportation. Here’s the summary.

Contributions to inflation from its eight components The Origins of Bidenflation

Contributions to inflation from its eight components (click for larger image)

And, for you visual learners, here’s the graph.

Contributions to inflation from its eight componentsThe Origins of Bidenflation

Contributions to inflation from its eight components (click for larger image)

Here’s what it means. Housing contributed almost half of the inflation (46.55%) between December, 2020 to January 2024. Transportation was second with 23.45%. Coming in third was food and beverages with 17.11%.

And now we can see why the public is upset about inflation and the high price level. The big three of consumer happiness are traditionally food, shelter, and clothing. But a lot of people drive to work, with some driving for work as well. These are costs consumers see every single week, sometimes more than once. When it costs $100 to fill up your car, you are probably not happy. When the price of, say, eggs rises by 35.4% between January, 2021 and January, 2024, consumers notice. That’s a compounded annual inflation rate of 10.6%. (Data is in the Excel workbook, calculations on the CPI Weights and Contributions tab.)

Crazy Theories About Inflation

Let’s start with a definition. Inflation is an increase in the average price level for goods and services purchased by the typical U.S. urban household. The most common measure is the Consumer Price Index for Urban Households (CPI-U or simply CPI). The Bureau of Labor Statistics releases the CPI monthly.

CPI data is available at just about any level of disaggregation you want. Two paragraphs earlier I pointed to the price index for eggs. Data at that level is found in the BLS table “Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category, January 2021.” When you search for this data, substitute the month and year you want.[6]

The inflation rate is not the price level. As long as there is inflation, the price level will rise. Deflation (a negative inflation rate) means the price level has fallen. That means todays high prices will not change as long as there is inflation. Even an inflation rate of zero means we’re stuck with the high prices.

While we can decompose the CPI into its components, that is only useful for looking at historical data. It’s common to say, “The price of cocoa has skyrocketed[7] recently” (which happens to be true, see below.)[8] “Therefore, there must be inflation” (not true).

Cocoa spot priceThe Origins of Bidenflation

Cocoa spot price (click for larger image)

In any given month, the prices of some products rise. The prices of other products fall. It’s a serious mistake to think that an increase in the price of cocoa means there is inflation. It’s also true that the price index for “Dishes and flatware” between January, 2020 (49.1) and January, 2021 (46.6) fell slightly. But nobody would say there was deflation during 2020.

It’s also pretty widely accepted among economists that long-run inflation can only be caused by excessive growth in the quantity of money in circulation in the economy.[9] In the short run there can be demand or supply shocks that temporarily raise the price level. But without an equal percentage change in the money supply, prices will adjust. While the price of, say, oil may stay high, the prices of other products will eventually fall.[10]

Here’s another myth: higher wages increase business cost and cause inflation. The first part is undoubtedly true. An increase in the price of any input to production will almost always cause business costs to rise. And businesses will try to offset that cost by raising prices. But the market still works. Higher price means lower quantity demanded. And lower quantity demanded mean less output and possibly fewer workers. The impact on output quantity and price depends largely on the price elasticity of demand.[11] (Read the footnote if you’re curious.)

And the long-term result is still the same. If the price increase is not supported by a larger money supply, the markets will adjust and inflation will return to zero (or its long-run state).

Finally, let’s look at the reason the Fed sets a 2% target for inflation. The reason for this is widely misunderstood. Here’s the real reason.

Macroeconomics has been bedeviled for 50 years by a simple empirical fact. When there is a significant increase in the unemployment rate, the wage rate does not fall immediately. Instead it falls gradually. We say wages are “sticky downward.”

The reason we want wages to fall is simple. A high unemployment rate means there is excess supply in the labor market. Since the wage rate is the price of labor, it should fall until the labor market is once again in equilibrium. As the wage rate falls, the unemployment rate should fall as well.

But there’s a gotcha in that description. The price of labor is not the dollar wage rate. It’s the real wage rate, equal to the nominal (dollar) wage rate divided by the price level. And there are two factors that can cause the real wage to fall: the nominal wage can decrease or the price level can rise.

So one ad hoc solution to the problem of sticky downward wages is to raise the price level. An inflation rate of 2% per year will gradually decrease the real wage, nudging the labor market toward equilibrium and (hopefully) make recessions shorter.


We’ve covered a lot of ground here. Let’s briefly review.

First, the Biden administration declared war on fossil fuels. And it shows. Between December, 2020 and January, 2024 the CPI increased by 18%. Of that, fully 6.7 percentage points were from energy. Production costs have increased in the US as oil producers are forced to tap more costly drilling areas. (Despite advances in petroleum geology, drilling for oil is still risky. Dry wells happen. A second impact of declaring certain geographic areas off limits to exploration is a higher percentage of dry wells.)

Second, the money supply increased dramatically, fully 11.6% in 2021. This plus supply chain issues caused inflation concentrated in three sectors that negatively impact consumers every day: Housing (46.6%), transportation (23.4%), and food and beverages (17.1%). Taken together those three categories accounted for 87.1% of the increase in the CPI during the first three years of the Biden administration.

Finally, I debunked some common myths about inflation. It’s not caused by increases in the price of any single product. While we can decompose the sources of inflation historically, using changes in the price of any single product as a predictor of future inflation is unwise. The article ends with a discussion of the reason the Fed sets a target of 2% annual inflation.

Appendix: Methodology

Let’s start with the details of the energy component of the CPI.

Energy Complete Analysis The Origins of Bidenflation

Energy Complete Analysis (click for larger image)

I calculated these numbers following the procedure described by BLS on their “Relative Importance and Weight Information for the Consumer Price Indexes” page.[12] Here are some definitions from BLS:

The relative importance of an item category is its percent of the CPI weight as of December of the most recent year.[13] 

How to estimate an updated relative importance

To estimate a relative importance for a component for a month other than December, one can use its previous published relative importance and update it by published price changes. For example, suppose you want to estimate the relative importance of energy for the CPI-U in September 2017.

You need the published relative importance for energy for December 2016 and the December 2016 and September 2017 indexes for energy and for all items. Enter the weights and indexes for these two item categories (see table A). The updated weight column is the December published weight times the relative change between December 2016 and September 2017. In this example, the updated weight for energy is 7.039 * (215.711/193.306) = 7.8549. For all items, the updated weight is 100.000 * (246.819/241.432) = 102.2313. To calculate the updated relative importance for energy where the weight for all items is normalized to 100, divide the updated weight for energy by the updated weight for all items, times 100. In this example, the estimated relative importance for energy in September 2017 is (7.8549 / 102.2313) X 100 = 7.683.

Updating relative importance (BLS example) The Origins of Bidenflation

Updating relative importance (BLS example) (click for larger image)

How to estimate the contribution of a component to the overall price change

Continuing the above example, energy prices increased 6.4 percent over the 12 months ending October 2017, while the all items index increased 2.0 percent. How does one figure out the “contribution” of the energy component to the all items change? Asked another way, what proportion of the all items increase can be attributed to the energy component?

To calculate a 12=month contribution, use the relative importance for the beginning of the 12-month period in question. In this case, we need the October 2016 relative importance for energy, which is 7.084. (Relative importance for any month can be located in the archived CPI news releases in the month following the month in question; the October 2016 relative importance is in the November 2016 news release.)

We can then follow a procedure similar to that in calculating the updated relative importance, multiplying the values by the ratio of index changes.

Estimating the contribution of energy to the inflation rateThe Origins of Bidenflation

Estimating the contribution of energy to the inflation rate (click for larger image)

The ratio of the difference in the change in weight of the component to the change in weight of all items, in this case 0.223, tells us the contribution. Converting this to a percent, energy accounted for 22.3 percent of the change in the all items index. [14]

The fraction of the total change in weight attributable to energy is 0.0616. After normalizing, energy accounted for 6.17% of the overall change in the CPI between December, 2020 and January, 2024.


  1. In some calculations I used a starting date of December, 2020. I did this because the Bureau of Labor Statistics reports some data using December as the reporting month.
  2. Never fear, I won’t mention “corporate greed,” a concept that could only appeal to those with zero knowledge of economics.
  3. The CPI-U is the average price level paid for goods and services by the typical urban household. (Yes, “urban” includes the suburbs.) The CPI is released monthly, making it the most closely-watched inflation measure.
  4. Attributed to a speech Prof. Friedman gave at a conference in South Africa in 1963.
  5. The Energy Information Administration reports oil data weekly. These figures are my calculations for the period January 7 – December 30, 2022.
  6. Frankly, the BLS search function is not very good. I recommend using Google, Bing, or Duck Duck Go. The first part of your search term should be Leave a space, then type what you’re looking for. For example, “ Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category, January 2021” Leave out the quotation marks.
  7. Business Insider (May 13, 2024). “Cocoa.” Available at Accessed May 13, 2024. Vertical axis labels added by me.
  8. For something entertaining, search for the hashtag #chocflation.
  9. Reminder: money is a medium of exchange, anything that can be used to buy goods and services in ordinary commercial transactions. Currency, checking account balances, and savings account balances in commercial banks are included. So are similar assets held in savings and loans and credit unions.
  10. This is a fundamental result of general equilibrium analysis and Walras’ Law.
  11. The extreme example is a perfectly competitive market in which no firm has any control over the price of its products. In other words, the demand curve faced by any firm is perfectly elastic. If one firm sees wages rise, in theory that firm will go out of business. There cannot be any price adjustment, so the quantity of output is reduced to zero. Similarly, if demand is perfectly inelastic the demand curve is vertical. All the adjustment must be the price since quantity demanded cannot change. Thus a rule of thumb: as demand becomes more elastic, an increase in cost will have a greater impact on output quantity and a lesser impact on price.
  12. Bureau of Labor Statistics (March 15, 2024). “Relative Importance and Weight Information for the Consumer Price Indexes”. Available at Accessed April 14, 2024.
  13. Bureau of Labor Statistics (April 5, 2024). “Measuring Price Change in the CPI: Household energy”. Available at Accessed May 8, 2024.
  14. Bureau of Labor Statistics (April 5, 2024). “Relative Importance and Weight Information for the Consumer Price Indexes.” Available at Accessed May 10, 2024.


Share if you feel like it

About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.