Inflation is not going away any time soon – and Biden will likely have to wait it out like the rest of us

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  • Price pressures have become a major concern for the White House, which has ramped up efforts to address supply-chain disruptions.
  • But ask investors, economists, and the American people for their thoughts on inflation, and no one sees inflation cooling down anytime soon.
  • Economist Jason Furman says, “I think the hardest thing to communicate is that not every problem has a solution. All that needs to be done to fix our economy is to be patient.”

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After lying dormant for years, inflation is once again ebbing away from American pockets, and has become a major concern for the White House.

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In recent months, the Biden administration has ramped up its efforts to address supply-chain disruptions economists attribute to heated inflation. And President Joe Biden is pushing 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 down anytime soon. That means everyone from the president to the everyday voter will need patience to get it.

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

“I think the hardest thing to communicate is that not every problem has a solution. All that needs to be done to fix our economy is to be patient,” he continued. “It’s really hard for any president to deliver a message. He should be seen as doing things.”

politics of prices

Rising food and gas prices are weighing on Americans living on fixed or modest incomes. Retail grocery prices rose 1% in October, laundry and dry-cleaning costs are up 6.9% from a year ago, and gasoline is being sold north of $6 a gallon in parts of California . General Mills informed retailers that it plans to hike prices on dozens of its brands soon, including Cheerios, Wheaties and Annie’s, according to a report Published Tuesday.

In turn, the inflationary message emanating from the White House has focused heavily on two large, Biden-backed bills. One of the president’s favorite counters to inflation concerns is 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 less vulnerable to inflation in the long term. will reduce the pressure.

Yet while better roads, childcare and weather conditions may help reduce future costs, Democrats face crucial midterm elections less than 12 months away.

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

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Political strategists saw that election as a gauge of voter attitudes toward the current direction of policy, with Democrats in control of the White House and Congress. The high-profile Democratic defeat in increasingly blue Virginia is believed to have sparked agreement between the party’s centrists and progressives over infrastructure and anti-poverty and climate bills.

Americans’ anger about the economy, as measured by the percentage of people surveyed who cited any economic issue as America’s top problem, reached a pandemic-era high. According to polling firm Gallup, (The survey took a random sample of 815 adults, and had a margin of error of plus or minus 4 percentage points.)

Twenty-six percent of Americans now cite economic concern as the nation’s top problem, while 7% say inflation, in particular, is their main concern. Gallup said just 1% of Americans reported inflation as their biggest concern in September. It has been more than 20 years since inflation was named the most important problem by at least 7% of Americans.

“Mom and Dad are worried, asking, ‘Can we buy enough food for the holidays? Will we be able to get the kids Christmas presents on time?’ Biden said in a speech on Tuesday.

no effect on gas

To help reduce fuel costs during the holiday season, Biden announced that the US and some of its allies would be tapping their national strategic petroleum reserves.

“The fact is that we’ve had the worst spikes ever before in the past decade,” Biden said of rising gas prices. “But that doesn’t mean we should just stand idly by and wait for prices to drop.”

While the Biden administration said it would dump 50 million barrels of oil from government reserves into global markets in the coming weeks, some analysts warned of a possible amount of action to try to placate consumers.

Exploitation of the country’s oil reserves will have a limited impact on fuel costs as “approximately 40% of the 50MM bbl release was already planned for 2022 along with the fact that most of the oil will only go to commercial reserves,” Tom Essays Wrote, founder of Seven Reports, a market research firm.

That oil will eventually be repurchased “and later reverted to SPR, meaning the move is largely symbolic and is not going to have a major impact on real physical markets,” he said.

Furman, who teaches economics at Harvard University, agreed. He said drawing on the SPR for the White House, concerned by the political impact of rising prices, falls in the “no-stone-left-core” category.

Current inflation, he said, is a function of wide variations in aggregate demand and aggregate supply – beyond the impact of a one-time appeal for SPR or any other quick fix.

inflation expectations

A strange feature of inflation is that today’s price increases are more a product of yesterday’s prices than people think. In other words, inflationary expectations can, in themselves, cause inflation.

According to the New York Federal Reserve Bank’s most recent consumer survey, median inflation expectations in October rose to 5.7% for the coming year, the highest level recorded since the series began in 2013.

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

The difference between yields on five-year Treasury inflation-protected securities, or TIPS, and related Treasury notes touched 3.17 on Wednesday, its highest level since at least 2003. This effectively means that investors expect inflation to be about 3% higher than average. next five years.

"I'm teaching my students the model that would have helped them predict inflation this year. And that model is that, if you have shortfall in demand, excess demand can help," he said.

"But if you try to push it too far, you constrain the supply," he continued. "You'll end up with higher prices instead of higher volumes."


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