Biden must be affected person with inflation

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Customers line up to check out at a grocery store in San Francisco, California, United States on Thursday, November 11, 2021.

David Paul Morris | Bloomberg | Getty Images

After slumbering for years, inflation is once again eating away at American wallets and has become a major concern of the White House.

In recent months, the Biden government has stepped up efforts to fix the supply chain disruptions that economists blame for hot inflation. And President Joe Biden has pushed his economic agenda as a remedy for inflation concerns.

But ask investors, economists, and the American people for their thoughts on inflation, and no one sees inflation cooling off anytime soon. That means everyone, from the president to the ordinary voter, will likely take patience to get through this.

“I don’t think you want to promise people that inflation will go away,” said Jason Furman, an economist and former chairman of the White House Economic Advisory Council during the Obama administration.

“I think the hardest thing to communicate is that not every problem has a solution. Some of what needs to be done to heal our economy is to be patient, ”he continued. “This is a really difficult message for any president. You have to be seen doing things.”

The pricing policy

Rising food and gasoline prices weigh on Americans who live on steady or modest incomes. Retail grocery prices rose 1% in October, laundry and dry cleaning costs were up 6.9% year over year, and gasoline sold above $ 6 a gallon in some parts of California. General Mills told retailers that prices for dozens of its brands, including Cheerios, Wheaties and Annie’s, would soon be hiked, according to a report released Tuesday.

In turn, the White House inflation messages have focused heavily on two large Biden-backed bills. One of the president’s favorite countermeasures to inflation concerns is pointing out that many economists say his $ 1.75 trillion Build Back Better bill and a separate $ 1 trillion infrastructure plan will make businesses and workers more productive and will reduce inflationary pressures in the long term.

But while better roads, access to childcare and weather conditions can all contribute to cost savings in the years to come, the Democrats face critical mid-term elections in less than 12 months.

Inflation appeared to be a hurdle for Democrat Terry McAuliffe, who lost to Republican Glenn Youngkin in the recent Virginia gubernatorial election.

CNBC policy

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Political strategists viewed this election as a gauge of voter attitudes towards current politics with the Democrats who control the White House and Congress. The high profile defeat of the Democrats in an increasingly blue Virginia is believed to have sparked a compromise between party centrists and progressives on infrastructure and anti-poverty and climate laws.

Americans’ fear of the economy, as measured by the percentage of respondents citing an economic problem as the primary US problem, peaked in the pandemic era, according to polling firm Gallup. (The survey included a random sample of 815 adults and had a margin of error of plus or minus 4 percentage points.)

Twenty-six percent of Americans today name economic worries as the nation’s biggest concern, while 7% say inflation in particular is their main concern. In September, only 1% of Americans named inflation their top concern, Gallup said. It has been more than 20 years since inflation was named the number one problem by at least 7% of Americans.

“Mothers and fathers are concerned and ask, ‘Will there be enough food we can afford for the holidays? Will we be able to bring Christmas presents to the children on time?'” Biden said in a speech on Tuesday.

Not much of an impact on gas

To cut fuel costs over the Christmas season, Biden announced that the US and some of its allies would tap into their national strategic oil reserves.

“The fact is that we have faced the worst spikes in the past ten years,” said Biden of rising gas prices. “But that doesn’t mean we should just stand by and wait for prices to fall on their own.”

While the Biden government said it would bring 50 million barrels of state-owned oil to the world market in the coming weeks, some analysts warned the move is likely, at best, to be an attempt to pacify consumers.

Developing the country’s oil reserves will have limited fuel costs as “nearly 40% of the release of 50 million founders of Sevens Report, a market research firm.

That oil will eventually “be bought back and later returned to the SPR, which means the move is largely symbolic and won’t have much of an impact on actual physical markets,” he added.

Furman, who teaches economics at Harvard University, agreed. He said that using the SPR for a White House concerned about the political implications of rising prices falls into the “no stones left on the other” category.

Current inflation is a function of broad shifts in aggregate demand and supply – beyond the influence of a one-off appeal to the SPR or some other quick fix.

Inflation expectations

One annoying characteristic of inflation is that today’s price increases are a product of what people think tomorrow prices will be. In other words, inflation expectations can themselves cause inflation.

According to the latest consumer survey by the New York Federal Reserve Bank, average inflation expectations rose to 5.7% in October for the coming year, the highest level since the series began in 2013.

A measure of investor inflation expectations over the next five years has risen in recent months.

The difference between the yields on five-year inflation-linked treasury securities (TIPS) and the corresponding treasury notes reached 3.17 on Wednesday, its highest level since at least 2003. This effectively means that investors are expecting an average inflation rate of 3% for the year next five years.

The recent surge in market-based inflation expectations caught the attention of Federal Reserve officials during their November monetary policy meeting. Their minutes of the meeting, released on Wednesday, showed that some central bankers viewed the jump as evidence that rising inflation forecasts are gradually becoming mainstream.

“Some participants cited the rise in survey and market-based indicators of expected inflation – including the remarkable rise in the five-year TIPS-based measure of inflation compensation – as possible signs that inflation expectations are less anchored.” The Fed Minutes had read.

“I taught my students the model that would have helped them predict inflation this year. And that model says that if the demand is way too short, additional demand can help,” he said.

“But if you try to take it too far, you will run into a supply constraint,” he continued. “They end up getting higher prices than higher quantities.”