Federal Reserve policymakers have announced that the rise in inflation will be short-lived, and they are unlikely to change that view due to spikes in energy prices, which are often volatile even in normal times, said Jay Bryson, chief economist at Wells Fargo.
However, if rising oil prices lead consumers and businesses to believe that faster inflation will persist, it could become a tougher problem for the Fed. Economic research suggests that the prices of things that consumers frequently buy, such as groceries and gasoline, weigh particularly heavily on their inflation expectations. As public opinion polls show growing concerns about inflation, soaring oil prices increase the risk of a more permanent shift in expectations, said David Wilcox, a former Fed economist and now a senior fellow at the Peterson Institute for International Economics in Washington.
“I don’t expect the price of oil to be the last straw on the back of a camel, but it is another straw on the back of a camel that is already carrying a lot of luggage,” said Wilcox. “The danger that an inflationary psychology will prevail is much greater today than I would have said three to five years ago.”
Republicans have taken up rising prices to criticize Mr Biden’s energy policies, including his decision to revoke approval for the Keystone XL oil pipeline and his pause in selling new state oil leases, a move a federal judge has blocked.
“Bad policies are already creating conditions like higher gasoline prices that we haven’t seen in a long time,” Wyoming Republican Senator John Barrasso wrote in an opinion paper last week. (Energy experts say Mr Biden’s policies had no significant impact on oil prices.)
Ms. Psaki noted that Mr. Biden had consistently opposed a federal gas tax hike, which some Republican senators and corporate groups had advocated to help finance infrastructure spending. The deal that Mr Biden reached with a bipartisan group of senators last month did not include an increase in the gas tax.
“It remains a top priority for the government to ensure that Americans do not carry loads at the pump,” said Ms. Psaki. “That is one of the main reasons why the president was – vehemently – against a gasoline tax and any tax on mileage, because he believed that it would be on the back of the Americans. And the bottom line was a red line for him. “