President Biden and his advisers for months predicted inflation would be only transitory, a temporary problem that would fade as the economy rebounded and as supply chain issues were alleviated.
Prices increased 7 percent over the 12-month period that ended in December, making 2021 the worst year for inflation since 1982, according to a new report released by the Bureau of Labor Statistics. The rise in prices for almost everything from gasoline and groceries to used cars and construction materials could intensify a political crisis for Biden and his Democratic Party.
Inflation has a direct impact on the wallets of everyday people and, public opinion experts say, risks clouding the way they feel about an economy that by other measures is stable and strengthening.
Unemployment is low, wages are rising and the stock market is healthy. But as long as prices rise, Biden could pay a political price in November’s midterm elections, which will determine control of both houses of Congress.
“This is going to have huge consequences in the fall,” longtime Republican pollster Frank Luntz said.
He said that voters in focus groups he has conducted have been increasingly anxious and that while the coronavirus pandemic remains a top concern, the rising cost of goods is becoming more dominant.
“Of all the economic issues, this is number one,” Luntz said. “And it’s number one because whether you are upper middle class or lower middle class, you’re still affected.”
Fifty-four percent of Americans think the nation’s economy is getting worse, according to a Quinnipiac University survey released Wednesday, and many are blaming Biden. Some 57 percent said they disapproved of Biden’s handling of the economy, while only 34 percent said they approved.
“Voters still remain very very concerned about inflation,” said Celinda Lake, a Democratic pollster and strategist. “What’s important for Democrats to do is to say, ‘We’re making progress. . . . And while we’re making progress, this is not nearly good enough and we have to do more.’ ”
Lake pointed to aspects of Biden’s signature Build Back Better agenda that are popular with voters and would help bring down inflation — such as lowering the cost of child care, prescription drugs and elder care — but that legislation is stuck in the Senate amid resistance from Republicans and Sen. Joe Manchin III (D-W.Va.).
Biden has argued that his infrastructure legislation will improve the nation’s transit lines and electric grid, preventing future problems with the global supply chain, and that if Build Back Better passes it will put more money into the pockets of average Americans.
But there is limited time. Studies show that attitudes about the perceived direction of the economy tend to harden in May or June of an election year. And with negative news tending to linger in its impact compared with positive news, Democrats view the next few months as crucial.
“The volatility is so great right now that voters are almost shellshocked,” Lake said, adding, “The way people describe it is they’re on a roller coaster and they want to get off.”
For the party in power, that can be perilous, even as the Biden administration does have other strong economic metrics it can point toward.
“It doesn’t matter how good everything else is going — people really do feel inflation,” said Joe Trippi, a Democratic political consultant. “Most people don’t feel 9 million jobs created. They don’t feel that. They feel when it’s $10 more to fill your tank up or bread is up. They feel it, even if they’re getting paid more.”
Brian Deese, the director of the White House’s National Economic Council, said Wednesday that inflation has lingered in part because the unemployment rate fell more quickly than expected and the pandemic has continued to affect the global economy and the supply chain.
Asked by a reporter what the administration got wrong in calling inflation “transitory,” Deese said, “If we look at the situation earlier in the year, a number of projections and forecasts have come differently than we anticipated.”
“I think that the nomenclature aside, we find ourselves in a position now where we are looking forward and most forecasters are projecting that the price increases will moderate,” he added, aligning the administration with forecasts that inflation will ease over the course of this year.
Biden six months ago pointed to the likelihood of inflation being temporary. “The overwhelming consensus is it’s going to pop up a little bit and then go back down,” he said on June 24.
More recently, the president has sought to speak to the concerns.
“For working people and middle-class people, it’s a big hit,” he said last month in an interview with Ohio station WHIO. “The inflation, at least for the time being, is real.”
On Wednesday, Biden pointed to a portion of the Bureau of Labor Statistics report that showed gas and some food prices had dropped slightly in December after months of increases, saying that it “demonstrates that we are making progress.”
“At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets,” he added in a statement.
Democrats say they welcome a debate over the economy — pointing to a lack of firm plans from the GOP — but Republicans argued the new inflation numbers were another sign that Biden’s policies are not working.
“The average person is confronted on an hourly basis — whether it’s gas, bread, anything they buy, they’re reminded how bad the Biden administration is,” said Corry Bliss, a Republican consultant working on House, Senate and gubernatorial races.
“You’ll see a lot of ads on this,” he added. “You’ll see ads of people at gas stations, at the grocery store.”
Over the course of the year, food, energy and shelter costs all rose on average by more than 8 percent. Those three categories constitute 50 percent of the average household budget, said Douglas Holtz-Eakin, a GOP policy analyst who has served as director of the nonpartisan Congressional Budget Office.
“That’s their substantive problem,” Holtz-Eakin said of the Biden administration. “This is unheard of for 40 years.”
After initially arguing that rising prices would prove short-lived, the White House has deployed an all-of-the-above approach to inflation. Officials launched a task force aimed at alleviating supply chain disruptions and worked on boosting the supply of truckers, increasing competition in the shipping industry and clearing the backlog of goods at key ports across the country, among other measures.
There are some signs of progress. After the White House blasted corporate profits in the meatpacking industry, meat prices fell in December, following months of increases. After the White House coordinated a global release of petroleum reserves, gasoline prices ticked down in December as well.
“I think they’re saying about all they can say,” said Dean Baker, a liberal economist. “I don’t think there’s a single thing they can do that will hugely change the story.”
The White House has acknowledged that inflationary pressures are hurting American families but has insisted the economy is still performing well, pointing to the low unemployment rate and a record number of job postings.
But some of those arguments are becoming increasingly hard to make. Government data released Wednesday showed average weekly earnings for most American workers fell by 2.3 percent over the past year, when adjusting for inflation, meaning salaries are not keeping pace with higher costs.
“That hurts,” said Matthew J. Slaughter, an economist at Dartmouth College. “That’s not building opportunity. That’s not advancing the American Dream.”
A senior White House official, speaking on the condition of anonymity to describe the administration’s position, acknowledged that, year over year, prices are growing faster than hourly pay but pointed to independent forecasts projecting inflation could be halved over the next year. If inflation drops from 7 percent to 3.5 percent and wage growth continues at the same pace, workers could substantially improve their economic fortunes.
The official also pointed out that inflation-adjusted earnings rose by 0.1 percent in December.
But economic experts see continued danger for the administration in the economy’s current trajectory. Some economists have warned of the risk of a “wage-price spiral” in which worker pay and prices skyrocket simultaneously as each tries to catch up with the other. That trend could be difficult to arrest without an intervention from the Federal Reserve that risks plunging the United States back into recession.
“The danger is we’re starting to see a dynamic of wage-price spiral in which rising wages lead to rising prices, which lead to rising prices, which lead to rising wages,” said Larry Summers, who served in senior positions in the Clinton and Obama administrations but has been critical of Biden’s $1.9 trillion stimulus package.
“The crucial macroeconomic insight from the experience of the 1960s and 1970s is that an overheated economy leads to not just high inflation but accelerating inflation,” Summers added. “We currently have an overheated economy, and there’s not much reason to think anytime soon it’s going to cool off.”
The political impact will depend on just how long it takes to do so.
“I think it gets down to: Is this temporary?” Trippi said. “If it is, there will be time between now and November for that to play itself out in a way that may have no impact in November 2022.”
“If it’s sustained through the election?” the Democratic strategist added. “Yeah, it’s going to hurt.”