Biden will have to be patient with inflation

Customers queue to pay at a grocery store in San Francisco, California, U.S., on Thursday, November 11, 2021.

David Paul Morris | Bloomberg | beautiful pictures

After lying dormant for years, inflation has once again overwhelmed Americans’ wallets, and it has become a top concern for the White House.

In recent months, the Biden administration has ramped up efforts to redress supply chain disruption Economists blame hot inflation. And the president Joe Biden promoted its economic agenda as a remedy for worries about inflation.

But ask investors, economists, and Americans for their thoughts on inflation, and no one sees inflation slowing down anytime soon. That means everyone from the president to the everyday voter will likely need patience to get through this.

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

“I think the hardest thing to communicate is that not every problem has a solution. Some of the things that need to be done to heal our economy is patience,” he continued. “It’s a really hard message to send to any president. They have to be seen as people who are working.”

The politics of price

Rising food and gas prices are weighing heavily on Americans living on a fixed or modest income. Retail grocery prices were up 1% in October, laundry and dry cleaning costs were up 6.9% from a year ago, and in some parts of California gas is being sold up north for $6. la a gallon. General Mills has informed retailers that it plans to soon raise prices for dozens of its brands, including Cheerios, Wheaties and Annie’s. according to a report third publication.

In turn, the inflationary message coming out of the White House has focused heavily on two major bills supported by Biden. One of the president’s favorite measures to inflation fears is to point out that many economists think his $1.75 trillion Build Back Better bill and a valuable infrastructure plan $1 trillion will help businesses and workers be more productive and ease inflationary pressures in the long run.

However, while better roads, access to childcare and weather could help reduce costs years into the future, Democrats face elections. important midterms in less than 12 months.

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

CNBC Politics

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Political strategists see that election as a gauge of voters’ attitudes toward the current policy direction as Democrats take control of the White House and Congress. The Democrats’ famous defeat in an increasingly green Virginia is said to have sparked a compromise between centrists and progressives over infrastructure and anti-poverty and gas bills. Queen.

Americans’ anger about the economy, as measured by the percentage of those surveyed who mentioned any economic issue as the top issue facing the US, hit a high in pandemic era. according to polling company Gallup. (The survey randomly sampled 815 adults, and it had a margin of error of plus or minus 4 percentage points.)

26% of Americans now consider the economy as their top national concern, while 7% say inflation, specifically, is their main worry. In September, just 1% of Americans cited inflation as their top worry, Gallup said. It has been more than 20 years since inflation was considered the most important issue by at least 7% of Americans.

“Anxious parents ask, ‘Will we have enough food to buy for the holidays? Will we be able to get the kids’ Christmas presents on time? “, Biden said in a speech Tuesday.

No big effect on gas

To help reduce fuel costs over the holiday, Biden announced that the United States and some of its allies will exploit their national strategic oil and gas reserves.

“The reality is that we’ve had to deal with even the worst spikes ever in just the last decade,” Biden said 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 administration has said it will bring 50 million barrels of oil from government reserves to the global market in the coming weeks, some analysts warn that the move is most likely aimed at eradicating consumer comfort.

Exploiting the nation’s oil reserves will have a limited impact on fuel costs because of “nearly 40% of the 50MM bbl releases are scheduled for 2022 as well as the fact that much of the oil will simply be moved to the commercial stockpile,” writes Tom Essaye. founder of Sevens Report, a market research firm.

He added that that oil will eventually be bought back “and then returned to the SPR, meaning the move is largely symbolic and won’t have a major impact on the actual physical market.” .

Furman, a lecturer in economics at Harvard University, agrees. He said drawing on the SPR was “unforgivable” for a White House worried about the political impact of rising prices.

Current inflation, he said, is a function of large changes in aggregate demand and aggregate supply – beyond the effect of a one-time appeal to the SPR or any other quick fix.

Inflation Expectations

An annoying feature of inflation is that the price increase today is a product of what people think prices will increase tomorrow. In other words, inflationary expectations can themselves cause inflation.

Average inflation expectations in October rose to 5.7% for next year, the highest level ever recorded, according to the Federal Reserve Bank of New York’s most recent consumer survey. chain started in 2013.

A gauge of investors’ expectations for inflation over the next five years has spiked in recent months.

The differential between the yields on five-year Treasury inflation-protected securities, or TIPS, and corresponding Treasuries hit 3.17 on Wednesday, the highest level since at least 2003. That means investors think inflation will average around 3% over the next five years.

Inflation expectations based on recent bull market attracted the attention of Federal Reserve officials during their November policy meeting. Minutes of their meeting, released Wednesday, showed that some central banks saw the jump as evidence that bullish inflation forecasts are starting to become mainstream.

“Several participants pointed to an increase in survey and market-based indicators of expected inflation – including a notable increase in the TIPS-based inflation offset over the past 5 years. year – as possible signs that inflation expectations are becoming less stable,” read the Fed minutes.

“I’ve taught my students a model that can help them predict inflation this year. And that model is, if you lack demand, then additional demand can help,” he said.

“But if you try to push it too far, you’ll run into supply constraints,” he continued. “You’ll get a higher price instead of more quantity.” Biden will have to be patient with inflation

Sarah Ridley

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