The White House is facing increased pressure to ease inflation as producer prices rose 9.7% in January, a near-record high for the benchmark.
The record for the 11-year-old producer price index was 9.8% in December, with prices rising another 1% in January alone, doubling projections. The inflationary pressures are adding to President Joe Biden’s mounting political concerns heading into the midterm elections.
INFLATION HOVERS AT 9.7% IN PRODUCER INDEX, RIGHT NEAR HIGHEST ON RECORD
“In the near term, there’s not a lot they can do,” said Bill Hoagland, the senior vice president of the Bipartisan Policy Center. “A lot of this is still driven by COVID. There’s a shortage of people on the production line, a shortage of supplies coming in, and the sooner we can get that under control, it will be a major factor in bringing those prices down.”
Rising prices are a top concern for voters, and they disproportionately affect those with low or fixed incomes. The PPI gauges the wholesale prices of goods, which are inevitably passed down to consumers.
The COVID-19 pandemic remains the top factor, Hoagland argues, with workers missing shifts due to illness and some who are afraid to go in, particularly during the height of the omicron variant surge that took place in January. Rising tensions with Russia also contributed to high energy prices, creating another incentive to improve the situation at the Ukrainian border.
Biden could tap into the strategic petroleum reserves or lower the gas tax, an idea Hoagland doesn’t favor at a time when Democrats are trying to wean America off of fossil fuels.
After saying for months that inflation was temporary and transitory, the Biden administration will need to get inflation closer to the Federal Reserve’s target of 2% as soon as possible. The Fed uses the personal consumption expenditure price index, which is running a bit cooler at 5.8%.
The White House is now acknowledging it will need to tackle the issue head-on.
National Economic Council Director Brian Deese said last week that, despite the moderate wage growth ushered in by the administration, “this inflation challenge is real, and we need to address it.”
Congressional Republicans and conservative advocacy groups are calling on Biden to curb spending, along with having the Fed raise interest rates and end asset purchases.
“Higher borrowing costs also hurt consumers and small businesses, but Democrats’ inflationary spending spree in the name of COVID-19 has left the Fed with no other choice,” said Job Creators Network President and CEO Alfredo Ortiz. “The remnants of the Build Back Broke legislation should also go down in flames because its fiscal impact and economic distortions threaten to turn high inflation hyper.”
Proponents of Biden’s social spending proposals say that programs such as subsidized child care will make it easier for people to return to work, thus increasing productivity, while detractors point to funding that was poorly targeted during previous stimulus bills contributing to price spikes.
The White House has also launched investigations against Big Meat, saying industry consolidation is behind year-over-year price hikes of up to 20% in that industry. But business groups, including the U.S. Chamber of Commerce, point to labor and energy costs rather than consolidation as the problem.
Raising interest rates will lower inflation, but it’s a double-edged sword, argues Center for American Progress Senior Fellow David Madland.
“It has the effect of reducing inflation by reducing economic growth,” he said. “Right now, the economic recovery in the United States is significantly better than in most of the rest of the world, and I don’t know that we want to arrest that recovery.”
Instead, like Hoagland, he says getting the virus under control will be the top factor in smoothing supply and demand going forward.
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Rising prices have dented the president’s approval ratings, and Republicans have bashed Democrats for their spending bills. A White House official told the Washington Examiner Tuesday that fighting inflation is Biden’s top priority, in addition to jobs and economic growth.
“We respect the Fed’s independence in achieving its dual mandate of full employment and stable prices, and, right now, it is especially important for Congress to move quickly, beginning this afternoon, to approve the President’s nominees to the Fed,” the official said. “The President will continue to make progress on his three-part plan of addressing supply chain disruptions, lowering kitchen-table costs with his Build Back Better agenda, and promoting more competition.”
