President Joe Biden acknowledged this week that “prices are still too high,” highlighting the ongoing concern over inflation. However, Tuesday’s inflation report revealed that the situation is even worse than anticipated, further intensifying one of Biden’s most challenging political dilemmas.
According to the Labor Department, the Consumer Price Index for January showed a year-on-year increase of 3.1 percent. While this was slightly lower than the 3.4 percent recorded in December, it exceeded economists’ expectations of 2.9 percent as per a Bloomberg survey. Notably, housing costs played a significant role in driving up prices in January.
The report has the potential to increase the pressure on the Federal Reserve to maintain higher interest rates for a longer period of time in its efforts to control inflation. This could have a prolonged impact on both consumers and businesses. Moreover, the timing of this report coincides with the 2024 campaign, adding a new dimension to the ongoing debate on high prices.
The U.S. economy has shown undeniable strength during Biden’s tenure, leading many economists to revise their recession predictions for this year. Republicans, however, are directing their economic criticisms towards the ongoing issue of higher prices, despite the fact that the rate of cost increases has been slowing down. Since Biden took office, inflation has outpaced the growth of average weekly earnings.
According to EJ Antoni, a public finance economist at the Heritage Foundation, although prices are not rising as rapidly as before, wages have not kept pace with the inflation experienced in recent years. This mismatch between wages and inflation is a significant factor contributing to the negative sentiment surrounding the economy. Until this situation improves, people are likely to remain pessimistic about the state of the economy.
The latest inflation report has a significant implication: the Federal Reserve may delay its plans to initiate rate cuts. While the central bank is aiming to lower rates this year, it is currently engaged in a battle with Wall Street regarding the expected timing of these cuts.
Fed Chair Jerome Powell has recently indicated that the possibility of a rate cut in March has been ruled out. Furthermore, the latest inflation data suggests that the expected rate cut in May might be pushed back to June or even later. As a result, U.S. stocks experienced a decline following the release of the report.
The CPI report is expected to give more ammunition to Republicans who claim that Democrats are disconnected from the struggles caused by rising prices. The White House is making an effort to highlight President Biden’s commitment to addressing this issue. Treasury Secretary Janet Yellen will be making appearances in swing states such as Pennsylvania and Michigan this week.
In a video released on Super Bowl Sunday, the president criticized companies for engaging in “shrinkflation” and failing to reduce prices. The attack was reiterated in a speech on Monday, where he cautioned against the consequences of “greedflation.”
He urged corporations to pass on their savings to consumers, emphasizing the importance of doing so.
Broad-based deflation, which refers to a widespread decrease in prices, is unlikely to occur before election day unless there is a significant economic crisis. However, there is an expectation of continued disinflation, although it may not occur at a rapid pace.
According to a survey conducted by the National Association for Business Economics, the majority of economists anticipate that the Consumer Price Index (CPI) will continue to be high. Around two-thirds of the economists believe that it is likely or very likely for the CPI to remain above 2.5 percent until the end of the year. Meanwhile, a consumer survey conducted by the New York Fed revealed that inflation expectations have remained relatively stable, with the median expectation for this year being around 3 percent. Additionally, the White House highlighted a finding from the New York Fed indicating that perceptions about household finances have improved. More respondents reported feeling better off compared to a year ago, while fewer respondents reported feeling worse off.
According to Joseph Brusuelas, principal and chief economist at RSM US, the way consumers perceive inflation will largely depend on the price of gasoline.
During a conversation with the average consumer, the focus on inflation tends to revolve around the prices of gasoline and groceries. This insight was shared by an individual prior to the release of the Consumer Price Index (CPI) on Tuesday. They emphasized that if energy and gasoline costs continue to decrease, it would have a positive impact on the incumbent.
According to Bob Elliott, the CEO and co-founder of Unlimited Funds, the big question on everyone’s mind is whether inflation will start to rise once again.
In a recent statement, the speaker emphasized that the current disinflationary pressures that have been driving the Consumer Price Index (CPI) down may not continue indefinitely. Instead, the ultimate level of inflation will be determined by more enduring factors, such as housing costs and the overall price inflation of services, which are closely linked to wages. It is worth noting that these aspects have not experienced the same degree of decline as goods prices have.