The White House is preparing for another bad inflation report after June’s skyrocketing energy prices.
A day before the release of June’s much-anticipated consumer price index report, senior White House officials tried to get ahead of the likely bruising numbers by arguing that the underlying economic situation is better than the headline inflation rate would suggest.
The officials told reporters that the month of June experienced the highest gas prices on record and that those prices have since moderated a bit. The headline CPI number, which is expected to be more than the 8.6% annual inflation experienced in May, does not reflect the current reality, one official said.
Gas prices rose above $5 per gallon in June for the first time in history, in large part due to the war in Ukraine. As of Tuesday, they had fallen to $4.66, which is high but a rapid decline from June levels.
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Gas prices alone weigh heavily in headline CPI reports.
Gas prices averaged $4.48 per gallon in May and shot up to an average of $4.92 last month, a nearly 10% increase. One official predicted that the spike would result in about a half-percentage-point bump in June’s month-over-month headline inflation.
“That elevated price in June is both out of date to where the market is today and out of date to what American consumers, more importantly, are actually experiencing today,” the official said.
The White House is focusing on “core” inflation, which is the CPI reading that has volatile food and energy prices stripped out. While headline CPI inflation is forecast to tick up to 8.8% for the 12 months ending in June, core CPI inflation is expected to have decreased from 6% to 5.7% during that same period of time.
The personal consumption expenditures index, a separate inflation gauge favored by the Federal Reserve, also recently saw another decline in core inflation, which dropped from 4.9% to 4.7% in May. May was the third month in a row that core inflation fell in that index, a signal for the central bank that inflation pressures may be lessening.
The Biden administration has also been keen on focusing on how inflation is not just elevated in the United States, but also in other developed countries around the world.
Republicans and some economists have blamed the administration and congressional Democrats’ massive increase in federal spending for causing prices to increase dramatically. In response, the White House has sought to emphasize the global aspect of inflation, particularly problems with supply related to Russia’s war in Ukraine.
Biden has used the phrase “Putin’s price hike” to describe the phenomenon, a reference to the Russian leader Vladimir Putin.
On Tuesday, a White House official ran through levels of inflation being experienced abroad, calling the higher prices a “global challenge.” The official noted 7.7% headline inflation in Canada, 8.6% in Europe, and 9.1% in the United Kingdom.
Commodity prices have also been declining, a factor that would not be reflected entirely in June’s CPI report. The official pointed out that the price of wheat is down by a whopping 30% from its June peak, something that could also relieve price pressures on food.
Despite preparing reporters to brace for a high June inflation reading and highlighting the factors that might make the reading higher than current economic conditions, top White House officials are not yet ready to say that inflation has peaked.
One official said Tuesday that it’s “a little early” to declare that the U.S. is definitively at a peak in terms of energy prices, but noted that prices have declined over the past month — a welcome development.
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In response to the scorching inflation, the Fed has been aggressively hiking interest rates. After its June meeting, when it was apparent that inflation had not peaked in May, the central bank jacked up interest rates by three-fourths of a percentage point, the most aggressive increase since 1994.
Fed officials and Fed Chairman Jerome Powell have made it clear that they intend to keep hiking the federal funds rate at a quick pace until inflation starts to tamp back down to acceptable levels.
