The new inflation politics for Biden
Inflation is still high enough to concern the Federal Reserve, but two of the most politically charged consumer goods are looking a lot better — food and gas prices.
That could offer President Joe Biden a bit of a reprieve after years of bleak public sentiment about the economy.
Food prices ticked up only 0.2 percent in May compared to April, with grocery costs essentially flat after falling in the previous two months, the government reported Tuesday. Energy prices dropped a whopping 3.6 percent — with gasoline alone plunging 5.6 percent. While the Consumer Price Index tracks everything from cars to telephone plans, food and fuel prices stand out the most for consumers.
Fed policymakers meet on Wednesday and are expected to pause after more than a year of interest rate hikes. That keeps alive hopes of a so-called soft landing, where the economy can avoid a recession even as growth slows. But they might not be done for good since inflation remains elevated, and even just holding rates where they are will likely be a burden on many people.
To be clear, economic confidence is still quite low — with only about a third of Americans approving of Biden’s handling of the economy. But it can’t be a total coincidence that Gallup polling shows the number markedly improved as gas prices dropped last year and has recently been more stable.
JPMorgan chief U.S. economist Michael Feroli said drops in food and fuel prices might also explain why consumers have lowered their forecast for where they expect inflation to be in the short term. The New York Fed on Monday reported that consumer expectations for inflation a year from now have declined.
Stifel’s Brian Gardner cautioned, though, that prices are still much higher than they were before the pandemic.
“Any kind of change in thinking is going to be slow because while the increase in prices is slowing and maybe topping out, we’re still dealing with some hefty increases over the past couple of years,” he said.
Gardner said this could be tricky for Biden to message heading into the 2024 election, especially since the administration — as well as Fed Chair Jerome Powell and many forecasters — originally argued that inflation would only be "transitory."
“To the extent that inflation can get under 4 percent and closer to 2 percent, the White House and the Biden campaign would be on stronger footing,” Gardner said. “But I think because of their credibility problem coming out of the beginning of inflation, they’re going to have to be a little bit careful on that.”
A White House official said the data undeniably shows progress is being made. “We’re not making the point about what the forecast will be, but what has happened,” the official said. “There’s still work to be done, but we are coming from CPI above 9 percent to 4 percent.”
Economic sentiment in the U.S. is also heavily driven by partisanship, so Republican politicians will still use inflation to rally support regardless of how it behaves now, said George Washington University Professor Sarah Binder.
“Certainly, falling prices for gas and food — things Americans notice the most — will take some bite out of Republican attacks,” she said. But “with a Democrat in the White House, Democrats think inflation will be lower than do Republicans.”
Meanwhile, many prices are still rising, and annual headline inflation — which includes food and energy — is still at 4 percent. So a potential victory lap isn’t in the cards for some time yet.
“Other economic headwinds remain on the horizon, including stubbornly high shelter inflation, increasingly restrictive monetary policy, as well as the possibility of a recession — albeit likely a mild one — as we head into an election year,” said Libby Cantrill, head of public policy at PIMCO.