Republican vice presidential candidate Paul Ryan told members of the senior-citizen lobby AARP Friday in New Orleans that the Federal Reserve’s accommodative policy is “a short-term fix that comes at a long-term cost” to seniors.
“The Fed’s actions are already having an effect on energy prices and food prices, forcing our nation’s seniors to stretch their fixed incomes,” he said. “All this money-printing hurts savers. It threatens the future value of our money—and seniors are bearing most of the risk.”
It was only a small part of a speech otherwise largely devoted to pitching Ryan’s controversial Medicare plan to seniors—a speech that drew boos from the crowd. But why mention it at all? Or, more pointedly: is the topic of inflation—over which a president has little power—a winner on the campaign trail?
The answer is that it may be, particularly among seniors.
Inflation is an important issue to seniors in part because of entitlements. Inflation became a hot issue last year, when the congressional “supercommittee” tasked with identifying areas for government savings considered changing the figure used for calculating Social Security cost of living increases from the consumer price index to the so-called chained CPI. By changing it from the regular to the chained CPI, which takes into account substitutions that people make when faced with higher prices, it would have likely meant slightly lower benefit levels.
“This so-called ‘chained CPI’, through compounding, would cut seniors’ benefits by thousands of dollars over their lifetimes – and the older one gets, the larger the cut,” said AARP Executive Vice President Nancy LeaMond last fall.
The question, though is whether Ryan is right: have Fed Chairman Ben Bernanke and the members of the board’s Open Market Committee really been behind recent price bumps in food and energy? Perhaps, but certainly not entirely.
On the one hand, the Fed’s policy of “quantitative easing” in which it engages in buying bonds, has created inflation in certain categories, according to Doug Roberts, managing principal at Channel Capital. But inflation has been subdued in other areas. “Food and energy has tended to pop up, but other areas have tended to come down. What happened is the basket averages out.”
Food prices have grown by 2 percent over the last 12 months, according to the CPI, and gas prices have grown by 1.8 percent. But depending on the month, those jumps can be much bigger—last month, the CPI for gasoline jumped up 9 percent.
Quantitative easing can also cause price hikes in commodities, like food inputs and oil, as investors flock look for higher returns than they can get on bonds, as the Fed’s buying depresses their rates of return, says Roberts. That can boost food and energy prices.
However, food and energy prices are volatile, subject to fluctuations in the weather and geopolitics. Separating the rise attributable to Fed policy from such distortions as the Midwest drought or Middle East unrest is virtually impossible.
Roberts says the notion, voiced by Ryan, that seniors are hurt more than others when prices rise is more a matter of how Americans on low or fixed incomes (often seniors) adapt to price changes. Rising prices for basics like food and energy tend to hit these groups harder than those with more disposable cash available.
Ryan’s speech did not mention the potential good that can come from the Fed’s easy-money regime. If lower interest rates goose the housing market or cause people to borrow to buy new cars, then the overall economy will prosper. That would benefit both seniors and younger Americans alike.
Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at firstname.lastname@example.org.