Expected price increases raise political stakes for Biden

A new inflation report is expected to show an increase in consumer prices for a third straight month, an outcome that could lead to increased scrutiny on President Biden and Democrats looking to push their social-spending bill through Congress.  

The Labor Department’s consumer price index (CPI), which measures price growth for a range of staple goods and services, is likely to show higher inflation in October amid a series of supply chain snarls and backlogs.

Most economists expect consumer prices to have increased by 0.5 percent last month and by 5.8 percent in the 12 months leading into October. If those forecasts pan out, it will mark the third straight month of rising inflation and the sixth straight month with annual inflation above 5 percent. 

Biden and Democrats have acknowledged the pinch of rising prices on household budgets while attempting to highlight aspects of the economy’s strength. 

The unemployment rate dropped to 4.6 percent in October, the labor market has begun to bounce back from the most recent wave of the delta variant, household savings and the stock market remain at record highs and consumer spending is steaming along despite price increases.

Even so, the unique political weight of inflation — particularly for food and gas — has heavily skewed public opinion against Biden and Democrats at a crucial moment for the party.

“On paper, the economy is going great. On the ground, people really don’t like inflation and supply shortages,” Frank Luntz, a prominent Republican pollster, said in a Wednesday tweet.

Republicans have blamed higher inflation on Biden and the broader Democratic economic agenda — particularly the third round of relief checks and the expansion of federal unemployment benefits through the March stimulus bill. Rising gas and food prices also appeared to boost Republican candidates in elections across the U.S. last week.

Americans’ confidence in the state of the economy dropped to its lowest level since January in October, according to a Gallup poll, even as a record high 74 percent of respondents said it was a good time to find a quality job.

“The latest economic confidence figures suggest the negative aspects of the economy — particularly inflation but also the related increase in gas prices, a worker shortage and the supply chain challenges — are outweighing the positive aspects of the economy,” Gallup research consultant Megan Brenan explained.

Inflation picked up in the beginning of 2021 as prices rose back toward normal levels from deep pandemic lows. The recovery from the pandemic was kicking back into gear after a winter slowdown and accelerated sharply over the spring due largely to COVID-19 vaccines and another round of stimulus from Biden’s $1.9 trillion American Rescue Plan.

While the faster recovery helped the U.S. fill the hole in gross domestic product left by COVID-19 and bring back millions of workers, it also strained factories, shipping companies, warehouses and suppliers who were forced to scale back operations. 

The emergence of the delta variant in late July put even greater pressure on supply chains by directing even more spending toward goods as the industry suffered from another wave of shutdowns and backlogs. Higher health risks and school closures also prevented millions of workers from coming back to the job market who were widely expected to return as autumn began.

Most economists expect inflation to ease as pandemic-related constraints fade away and suppliers have easier access to the workers and materials they need to meet rising demand. 

But the final three monthly inflation readings of the year are expected to remain high as suppliers face another surge of demand ahead of the holidays. Steadily rising gas prices and airline fares, along with another surge in used car prices, could also push October’s price growth above expectations. 

Rising inflation has already posed some challenges to Biden’s economic agenda, particularly as moderates such as Sen. Joe Manchin (D-W.Va.) raised concerns about the potential inflationary impact of the broader social services and climate bill. His support is essential to passing the bill through the Senate, where it will need the unanimous backing of all 50 members of the Senate Democratic caucus.

“As the year ends, the final three inflation prints are more likely to be on the hotter side of what policymakers are comfortable with, especially due to developments in motor vehicle and air travel prices,” wrote Alex Williams, research analyst at Employ America, a nonprofit that supports policies to maximize employment.

“Much of the elevated inflation in the near-term is already baked in through dynamics that have been well-identified through the course of the pandemic,” he continued.

While Williams and many economists have expressed confidence that those dynamics would fade, the uncertainty over when prices will finally stabilize could spawn even greater discomfort among voters. 

Biden has responded by ramping up pressure on ports and package carriers to operate 24/7, ease restrictions that force shipping containers to pile up and work with labor unions to ensure enough workers will be around to smooth over supply chains. 

The administration has also touted both the bipartisan infrastructure bill and the broader “human infrastructure” measure as two key ways to expand the economy’s productive capacity.

“President Biden has clearly recognized the stress that even a small amount of inflation can bring to family budgets, and he has told his team to carefully track these developments and consider both near- and longer-term ways to ameliorate the recent trend,” said Jared Bernstein, member of the White House Council of Economic Advisors, during a Tuesday seminar hosted by the Roosevelt Institute and Groundwork Collaborative.

Bernstein, however, said higher inflation now was no reason to overlook the broader, long-term benefits of Biden’s stimulus push.

“We knew, and we said so at the time, that the plan would generate economic heat,” he said. “But as the president said, to the great relief of those of us who have long held this view, when shocks hit the economy, the risks of doing too little are greater than the risks of doing too much.”