Pentagon Prepares For Bigger 2023 Budget Due to Record-Breaking Inflation, Report Says
22:18 GMT 17.11.2021 (Updated: 12:44 GMT 13.04.2023)
© Photo : Elliot Valdez/U.S. Defense Department
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Statistics showed last week that the consumer price index in the US has risen by 6.2 percent on an annualized basis, hitting a 30-year record. The rising inflation has been accompanied by supply chains problems and worker shortages, which have affected defense companies as well.
The US Department of Defense is preparing for bigger figures in its 2023 budget as wages and prices on weapons are expected to increase as a result of inflation, Defense One reported Wednesday.
It may take “not only months, but possibly years” before the increased prices affect the costs of weapons projects, according Pentagon Comptroller Mike McCord. Pentagon still has fixed-price contracts with producers who bear the costs, but in case the inflation continues, the industry “will see an impact.”
Apart from that, salaries for Pentagon’s personnel were said to increase in 2023 by 4.6 percent.
“I would bet anything they were not planning on a pay raise that large,” said Todd Harrison, who leads defense budget analysis at the Center for Strategic and International Studies. “So here they are in the final stages of the budget process [and] they've got to go back and find the money to pay for that.”
He added that it would “be hard to come up with that money” and the Pentagon officials who are preparing the 2023 budget “either have to ask for a higher top line, or they're gonna have to go back and take it out of acquisition programs.”
“We have in the industry one of the highest levels of cost-plus work, so those costs get passed on and shared with our customer,” Northrop Grumman CEO Kathy Warden noted. “Now I do want to emphasize that we in no way want to pass those costs on to our customers and we are working to minimize those impacts for their benefit, but our shareholders are not carrying that exposure.”
The budget is expected to be introduced in Congress in February next year. Meanwhile, Congress is currently one month behind schedule in passing the Pentagon’s 2022 budget, which includes a pay raise of 2.7 percent for both civil and military staff.
If the White House tells the Pentagon to cut spending, the latter could ask Congress for emergency funding, a common practice in case of unexpected war costs.
“Administrations never like to do that because it's a must-pay kind of bill and therefore it becomes flypaper for all kinds of political add-ons,” said Robert Hale, who served as Pentagon comptroller for more than five years during the Obama administration.
Inflation has also been caused by a global chip shortage and the aftermath of hurricane Ida that hit American manufacturing. The latter decreased by 0.7 percent in September, which is a seven-month record. The automotive industry has seen the biggest decline as car production fell 7.2 percent in September. In addition, labor shortages and congestion at ports that have delayed deliveries are expected to put pressure on production in the months and quarters ahead.
