Inflation report a new blow for White House
Friday’s inflation report delivered an unwanted surprise for the White House, Federal Reserve and investors.
While many economists and some administration officials had expected prices to show signs of cooling, they got the opposite: a re-acceleration in price growth that makes it more likely that the Fed is going to have to slam the brakes on the economy as it looks to slow the fastest pace of inflation in 40 years.
As one left-leaning think tank put it, the report was “pretty ugly.”
The news dispelled the notion that inflation may already have peaked, and it poured more fuel on the Biden administration’s biggest domestic policy vulnerability, politically and economically, as midterm elections approach in the fall.
It also raised the chances that the Fed, which has already started raising borrowing costs to tamp down demand, will have to make a series of larger interest rate increases over the next few months.
The consumer price index data showed mounting evidence that the war in Ukraine was continuing to push the prices of food, gasoline, electric power and other staples higher. Inflation in services, such as housing, remained high. Inflation in consumer goods — which administration
officials had hoped was slowing as supply chain snarls are worked out in sectors such as automobile manufacturing — surged anew after a spring slowdown. Costs for staples such as eggs, meat and bread soared, with an index measuring the price of food at home registering its largest annual increase since 1979.
The “1970s called, and it wants its inflation back. There is no room to sugarcoat this,” analysts at TD Securities wrote shortly after the report’s release. “The report should be of great concern for the Fed.”
After a senior White House official expressed hope to reporters
Thursday that the report would show indications of an economy that was beginning to shift toward what President Joe Biden has said is his goal of slower, more stable economic growth with lower inflation, administration officials and their allies did little Friday to dispel the idea that the numbers were challenging and disappointing.
The White House Council of Economic Advisers wrote in a series of Twitter posts that “price increases were broad-based,” while noting that core inflation — which excludes volatile commodities such as energy and food — had fallen slightly from its average at the beginning of the
year.
Outside allies were more blunt. The liberal Economic Policy Institute in Washington wrote on Twitter that the report was “pretty ugly — and shows the pain workers and their families are experiencing.”
Republicans blamed the president, as they have for more than a year, for the increases, saying Biden’s 2021 economic rescue bill effectively overheated the economy. “The truth is that inflation did not just sneak up on the Biden White House,” Rep. Jason Smith of Missouri, the top Republican on the House Budget Committee, said Friday. “The warning signs were there all along.”
Biden and his team have been trying to make a delicate pivot on the inflation issue, calling it his top economic priority and increasingly expressing sympathy for the households struggling to cope with rising prices. They have sought to reassure markets by leaning into a message of trust in the Fed to manage inflation with interest rate increases while attempting to project a sense of urgency with actions that officials concede will have a small effect, at best, on broad prices. That includes an announcement this week that the administration was pausing tariffs on some imported solar panels.
Officials also continue to search for additional ways Biden might bring down the price of gasoline, which is largely dictated by global market forces and difficult for presidents to influence in the short term to any large degree.
At the same time, the administration has tried to convince Americans that Biden has a plan to pull the economy out of its current state, which is frustrating consumers and weighing heavily on his poll numbers.
The data has refused to cooperate, and price spikes continue to hammer American families. One statistic from the Labor Department on Friday underscored the damage: It showed inflationadjusted average hourly earnings fell 3 percent in May from a year earlier.