Hicks: DOD doesn't yet see 'substantial' inflation effect on military budget

The Pentagon's deputy defense secretary said officials haven't yet seen a "substantial amount of inflation effect" on the military's budget, though she expects "those buying power concerns" will be visible down the line.

For now, Kathleen Hicks told an online Defense One Tech Summit audience today that the Defense Department has logged impacts in some areas, such as fuel prices.

But officials, she added, have also noted “the potential for inflation to affect buying power and everything from military housing to services’ contracts, which is really wage inflation sensitive, to of course, looking at those big platform acquisitions.”

“We are not seeing what most people would think of as substantial, a high percent of the defense budget being affected right now by those buying power concerns, but I do anticipate we’ll see them in the longer term,” she said.

If any of those buying power issues do arise, Hicks said DOD will “want to work with Congress to go after them.”

With the confluence of inflation, continued COVID-19-related fallout and supply chain issues, Hicks said she’s keeping a close watch on potential delays tied to firm-fixed-price contracts across DOD as summer progresses.

“It may not be that we see a price increase because it’s a firm-fixed-price contract, but we might see schedule slips and that could be supply chain, it could be workforce related, et cetera, it could be supplier prices,” she said.

On fuel prices, Hicks noted while the rising costs “underscore what we know already about fuel dependency,” she said the department is already “motivated at a more strategic level to make sure that we can free that tether on fossil fuel to the extent that we can.”

Doing so, she said, will help bolster the nation’s “combat credibility, particularly in places like the Pacific, where the logistics lines are very long.”

“For the United States to be effective in the Pacific, we already know we have a significant logistics challenge, worsened by the reliance that we have on fuel,” Hicks said.