'Americans are anxious': Unrelenting inflation puts pressure on Biden ahead of midterms
- Inflation rose at a fast-than-expected rate in May after showing signs of cooling slightly.
- Inflation hasn’t been this high since the early years of the Reagan administration.
- President Biden says that inflation remains his administration’s top priority.
WASHINGTON – President Joe Biden’s efforts to get soaring consumer prices under control suffered a serious blow on Friday when the government reported that inflation rose at a faster-than-expected rate in May.
Inflation unexpectedly hit a new 40-year high as gas, food and rent prices surged after showing signs of cooling off slightly in April.
The consumer price index increased 8.6% annually, the Labor Department said, the largest rise since December 1981. On Saturday, the AAA reported that, for the first time ever, the average gas price nationwide is $5.
The numbers raised fresh questions about how long Americans must continue to cope with elevated prices on everything from food, fuel and rent while also compounding political problems for Biden and congressional Democrats as they head into the midterm elections this fall.
Biden, speaking at the Port of Los Angeles on Friday, said he recognizes that high prices remain a real challenge for Americans and stressed that inflation remains his administration’s top priority.
“I understand Americans are anxious, and they’re anxious for good reason,” he said.
At the same time, Biden pointed to a strong job market, an unemployment rate near historic lows, and a federal deficit that is projected to fall $1.7 trillion this year as signs that the U.S. economy can rebound.
Because of that progress, “America can tackle inflation from a position of strength unlike any other country in the world,” he said.
Here’s a closer look at what’s behind soaring inflation:
Why is inflation so high?
Ronald Reagan was in the early years of his presidency the last time inflation was this high.
Economists had predicted inflation would hold steady at 8.3% in May, yet it jumped instead to 8.6%. Fueling the increase were gas prices, which rose from 4.1% in May and 48.7% annually. Grocery prices jumped 1.4% in May and 11.9% over the past year, while rent climbed 0.6% in May and 5.2% over the past year.
Economists point to several factors that are responsible for the increase, including a sudden burst of spending after lockdowns during the coronavirus pandemic, supply chain bottlenecks that boosted energy and food prices, and Russia’s war in Ukraine, which curbed global supplies of oil, wheat, corn and other commodities.
High inflation is expected to persist into next year, according to a report released late last month by the nonpartisan Congressional Budget Office. The agency expects the consumer price index to rise 6.1% this year and 3.1% in 2023. The forecast projects that inflation will drop from the current 8.3% but remain higher than a long-term baseline of 2.3%.
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What has Biden done to tame inflation?
Biden has taken several steps to try to tamp down soaring prices, including working to ease bottlenecks at the nation’s ports, calling for an investigation into price gouging and providing free or low-cost high-speed internet service to as many as 48 million Americans.
To provide relief to Americans facing high gas prices, Biden in March ordered the release of up to 180 million barrels of oil over six months from the Strategic Petroleum Reserve, the largest release from the nation’s emergency stockpile in its nearly 50-year history. The decision marked the third release from the strategic reserves in four months.
Yet gas prices continue to climb to record highs. The average nationwide price was $4.98 per gallon on Friday but topped $5 for the first time on Saturday, according to AAA. In some states, prices are even higher. In California, for example, motorists are paying $6.43.
When inflation is taken into account, Saturday's $5 average isn't the highest record. In July 2008, gas prices peaked at $4.11 a gallon, which would be equal to about $5.40 a gallon today. Still, the whopping average has shaken the country and contributed to the growing cost of living crisis, as Americans face the highest rate of inflation in 40 years.
What about the Federal Reserve?
With concerns over inflation mounting, the Federal Reserve raised its key short-term interest rate by a quarter-percentage point in March and said more hikes are planned.
In light of Friday’s numbers, the Fed is all but certain to implement the fastest series of interest rate hikes in three decades. By sharply raising borrowing costs, the Fed hopes to cool spending and growth enough to curb inflation without tipping the economy into a recession. It will be a difficult balancing act.
The Fed has signaled that it will raise its key short-term rate by a half-point – double the size of the usual hike – next week and again in July. Some investors had hoped the Fed would then slow its rate increases to a quarter-point hike when it meets in September or perhaps even pause its credit tightening. But with inflation raging hot, investors now foresee yet another half-point hike in September, which would be the fourth since April.
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What else can Biden do?
Not much, economists say.
Biden acknowledged last week that his options are limited. “The idea we’re going to be able to click a switch, bring down the cost of gasoline, is not likely in the near term,” he said. “Nor is it with regard to food.”
One option would be to lower or remove tariffs that former President Donald Trump imposed on Chinese goods when he was in office. Trump slapped tariffs of up to 25% on billions of dollars worth of Chinese imports as part of a trade war with Beijing.
Groups such as the U.S. Chamber of Commerce and the National Retail Federation have called on Biden to ease the tariffs, arguing that the duties are a major factor pushing up prices for consumers.
The Treasury Department has it is considering cutting some of the tariffs but any reductions would have to be weighed against the goal of holding China accountable for unfair competition.
Biden also called Friday for Congress to crack down on foreign companies that ship goods from Asia to the United States. Biden said those companies have raised their shipping prices by as much as 1,000% while their profits have increased sevenfold in one year to $190 billion.
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What are the political implications?
Multiple polls show inflation is the top concern for an overwhelming majority of Americans, an ominous sign for Democrats heading into this fall’s midterm elections.
Biden and Democrats face major headwinds to maintain control of Congress in November as a result of rising prices making many consumers anxious.
Thirty-four percent of Americans surveyed by Quinnipiac University said inflation was the most urgent issue facing the country in a poll released Wednesday.
Among registered voters, 46% said that if the election were held today, they would want to see the Republican Party win control of the House, while 41% preferred the Democrats.
Just 33% said they approve of the job Biden is doing, tying his lowest job approval rating in two previous Quinnipiac polls.
Michael Collins covers the White House. Follow him on Twitter @mcollinsNEWS.
Contributing: Paul Davidson, Joey Garrison, Wyatte Grantham-Philips, Ella Lee and The Associated Press
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