Pentagon’s future inflation losses revealed

The US military’s buying power to reduce by $110 billion in the near future amid a face-off with China, an industry group says

The US Department of Defense will need an extra $42 billion in the next fiscal year to account for soaring inflation and rising procurement prices, according to the National Defense Industrial Association.

In a report released on Tuesday its estimated that the Pentagon will experience a $110 billion loss of purchasing power because of record-high inflation.

It also warns that this development “comes at a dangerous time” as the US faces challenges from China and still suffers from Covid-19 fallout, as well as supply chain and workforce issues. The crisis also overlaps with the ongoing Russian military campaign in Ukraine, a country Washington has been supplying with weapons and other aid.

“Inflation is particularly disruptive to our national defense because the long budget and acquisition processes [the Pentagon] use prevents timely adjustments for inflation,” the report states.

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If this deficit is not remedied, this will bring about “maintenance backlogs, lower readiness ratings and delays in modernization efforts” and various other programs, undermining the overall readiness of US forces.

To salvage the situation, the report recommends that Congress add at least $42 billion to the Fiscal Year 2023 Defense Budget to avoid losing buying power, provide inflationary relief to companies that hold long-term fixed price contracts with the Pentagon while adjusting all future contracts for rising prices.

Meanwhile, all these figures and recommendations are based on the premise that “inflation has already peaked” and will return to a “normal” level in a couple of years.

However, many defense industry representatives don’t think they will receive the necessary aid, at least in the short term. “I am skeptical that a sector-oriented solution will be passed this year which fully makes up for the inflation numbers due to competing interests and election season," Pawel Chudzicki, leader of Aerospace and Defense practice at Miller Canfield law firm, told Reuters.

The defense industry group’s call to address the budgetary shortfall comes after the Pentagon advised its most vulnerable service members who were hit by inflation and skyrocketing gas prices to apply for food stamps as part of a Supplemental Nutrition Assistance Program.

The idea behind the move is that it would provide low-income military members and their families with a transfer card which can be used to buy designated food products in authorized retail stores.

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