Looming inflation
Economists say effects won’t last
WASHINGTON — Gas prices have whizzed past $3 per gallon in much of the nation. The cost of used cars and new furniture, airline tickets, ground beef and a Chipotle burrito are on the rise, too.
Many economists say the price increases are fueled by the aftereffects of a global pandemic and probably won’t last. But Republicans are hoping to storm into next year’s midterm elections arguing that steep government spending under President Joe Biden and a Democratic-controlled Congress has triggered inflation that will hurt everyday Americans.
The economic reality is more complicated. Still, with Republicans only needing to pick up a handful of seats to regain the House and Senate, the party increasingly sees the prospect of sustained higher prices as a way to connect policies made in Washington with voters whose pocketbooks may be feeling the strain.
Rep. Jim Banks, R-Ind., said his constituents have “seen the higher prices on gas in particular, but also groceries and the cost to keep their businesses running.” î Such voters, he said, “know, intuitively, that this is due to Democrats’ economic agenda and big spending plans.” î
Consumer prices rose 5 percent over the previous 12 months, the largest oneyear increase since 2008. Excluding volatile items such as food and energy, prices were up 3.8 percent — the biggest 12-month jump since 1992.
Those leaps were driven by comparisons to the pandemic-hampered 2020 economy, but nonetheless show prices climbing sharply, with the cost of used cars rising 7.3 percent in May and food costs increasing nearly half a percentage point over the same period. Gas prices have risen from a nationwide average of $2.48 to $3.13 per gallon under Biden, the first time since 2014 that it has topped the $3 threshold.
Former Federal Reserve economist Claudia Sahm said this year’s inflation rates are likely to remain far higher than usual, but that’s chiefly due to the the pandemic pushing inflation uncommonly low last year. There’s also a boom in consumer spending as the virus recedes and the lingering effects of disruptions to global supply chain, she said.
“It is not a structural change in the economy, it is a few months, ”î Sahm said.
Others are playing down the risk of price gains being sustained, because many were caused by supply bottlenecks set to ease as the post-pandemic economic recovery takes hold.
“We’re still skeptical that this signals the start of a sustained pickup in inflation, either in the U.S. or elsewhere,” î said Ben May director of global macro research for Oxford Economics.
Factories ramping up production are already easing some some pricing pressure. Lumber prices that skyrocketed are falling again. That eventually could affect everything from home-building in white-hot real estate markets around the country to the cost of a desk at Office Depot.
Republicans have nonetheless intensified warnings that inflation is surging and they blame the $1.9 trillion stimulus that congressional Democrats pushed through Congress. Charges that profligate federal spending is overheating the economy are growing louder from the right as lawmakers hammer out an infrastructure package.
Inflation jitters could end up resonating more with voters than many cultural issues Republicans raised in the opening months of Biden’s term. The president’s approval ratings have remained. î
Florida Sen. Rick Scott, who is leading the GOP effort to retake the Senate, has chided Biden to “realize that reckless spending has consequences, inflation is real and America’s debt crisis is growing.” î
White House officials see what’s happening as a global, rather than U.S.-centric, phenomenon because ports in Hamburg, Germany, and several Chinese cities face similar challenges. This suggests that the size of the coronavirus relief federal stimulus plan mattered less for inflation than the complexity of restarting a pandemic-shocked world economy. Higher shipping costs alone could make a typical pair of jeans 29 cents more expensive or increase a refrigerator’s cost $50, the Oxford Economics analysis says.
The Biden administration has created a task force to address supply chains to show that they are targeting some forces behind inflation. Part of the perceived inflationary pressure is rising wages, though, and the White House sees higher incomes as a positive. It also views some inflation as a byproduct of vaccinations increasing demand for workers, goods and services.
“We’re going to keep an eye on it, but we think it should resolve in the next few months,” Sameera Fazili, deputy director of the White House National Economic Council, told reporters recently.
The economy grew from January through March at a blistering 6.4 percent annual pace, and that could fuel further higher wages and possibly higher prices.