Three months ago, President Biden assured his fellow Americans that a surge in inflation was “temporary.” The Federal Reserve largely concurred. Now, Biden and the Fed either have to redefine “temporary” or come up with a different narrative.
Overall inflation hit 6.2% in October, the highest level of price hikes in 31 years. More concerning than the topline number are new indications that rising prices are becoming a permanent feature of the economy instead of a fleeting anomaly. “This is mounting evidence that inflation pressures are building throughout the economy,” forecasting firm Capital Economics reported on Nov. 10. “That underlines our view that inflation will remain elevated for much longer than Fed officials expect.”
Familiar trends, such as the rising cost of energy, along with new and used cars, are still pushing inflation higher. But there’s new inflationary pressure from rent and housing costs, which tend to be “sticky” because when rents go up, they usually stay up. Food prices are now rising more than average, another direct strain on family budgets. Health care costs, which have been uncharacteristically flat, have also started picking up.
Biden acknowledged the pain, saying in a Nov. 10 White House statement, “Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me.” He pledged government action to address soaring gasoline prices and other types of inflation.
But Biden’s leverage is limited. There’s no button Biden can push to dramatically increase supply or soften demand, to even out the imbalances pushing prices up. He could release oil from the nation’s Strategic Petroleum Reserve, which would at least show an effort to combat rising energy prices. But any price drop would be short-lived because there’s not really enough oil in the reserve to make a lasting difference. If Biden did this, he might want until the 2022 midterms drew near, to push prices down as voters are preparing to cast their ballots—which would, of course, look gimmicky and cynical.
Other maneuvers, such as banning energy exports, could gum up global supply chains even more than they are now and produce multiple negative consequences. Biden has already tried to unclog jammed ports with federal aid, to expand their operating hours, with minimal effect so far. He has a semiconductor task force to help ease a key shortage that’s choking auto production. Yet many factors pushing up inflation—surging demand amid Covid restrictions, limited port capacity, a shortage of truckers to deliver goods, the high cost of building new semiconductor facilities—simply defy quick fixes.
Unchecked inflation poses three major risks to Biden and his fellow Democrats who hold slim majorities in both houses of Congress. First is the obvious difficulty it causes consumers who have to pay more for essentials such as gas, food and rent. Consumers can work around some types of inflation. They can take more driving vacations, for instance, if airfare or rental cars are too expensive. Those types of discretionary goods and services do contribute somewhat to the high 6.2% annual inflation rate. But higher rent, food and transportation costs are hard to work around, and voters ordinarily blame whoever is in charge when basic living costs go up.
Higher real inflation also gives Biden’s Republican enemies tons of ammunition to demagogue the issue and fill the bogusphere with all kinds of false information blaming Biden for everything under the sun. Biden is already the Grinch who stole Christmas. Republicans say the Democratic stimulus bill passed in March is the principal cause of inflation, while ignoring several other stimulus bills from the Trump administration that preceded it. They also argue that Biden’s still unpassed “Build Back Better” legislation would stoke even more inflation, even though spending would roll out over a decade. Voters who shunned Biden in the 2020 presidential election don’t need convincing, but these attacks will sway some people who did vote for Biden and now regret it.
Unchecked inflation could also force the Federal Reserve to tighten monetary policy and raise interest rates sooner than expected, which could choke off a stock-market rally that has made millions of Americans much better off during Biden’s first 10 months in office. Fed tightening is always a delicate business, and if markets think the Fed is acting because the economy is strong enough to take it, they can absorb rate hikes without much damage. But if the Fed seems to be hiking because it got behind on inflation, a stock selloff could easily ensue, making gloomy Americans even grumpier.
People shop at an outdoor food market in Manhattan on November 05, 2021 in New York City. Inflation is causing U.S. consumer prices to increase solidly in the past few months on items such as food, rent, cars and other goods. (Photo by Spencer Platt/Getty Images) ·Spencer Platt via Getty Images
Biden still has some wiggle room. Economic conditions in June of an election year—six months from now, for the 2022 midterms—typically foretell whether the party in power will gain or lose seats when voters render their judgment. Biden’s standing is weak right now, with his approval rating down sharply from its peak in the spring. But six months is enough time for some shortages to ease and prices to come down, especially if Covid seems to be receding by the end of the winter. If consumers shift some of their spending back to dining out, traveling and other types of services, that would play a big role in bringing goods prices down.
Biden also needs to show he gets it, and for now he is at least saying he understands that inflation hurts. Voters don’t just want him to feel their pain, however. They want him to alleviate the pain. If he knew how, he would have done it already.
