White House officials launched a defensive strike Tuesday against what they expect will be a dour report marking another month of soaring inflation.
One day before the release of the consumer price index for June, President Joe Biden’s top economic advisers issued a memo designed to temper the likely public reaction to a new round of recorded price spikes.
The CPI data coming Wednesday “will largely not reflect the substantial declines in gas prices we’ve seen since the middle of June,” wrote National Economic Council Director Brian Deese and Cecilia Rouse, chair of Biden’s Council of Economic Advisers, in a five-page memo designed to provide “context” for the upcoming report.
They said gas prices have already fallen 5 percent from the June average, to around $4.68 a gallon, and “gas prices can be expected to decline in the weeks ahead” if wholesale prices remain at current levels.
“That elevated price in June is both out of date to where the market is today and out of date to what American consumers, more importantly, are actually experiencing today,” a senior White House official told reporters in a conference call.
Gas prices are particularly important because volatile energy and food prices have been “heavily impacted” by the war in Ukraine and will likely account for more than 40 percent of the CPI number for June, Deese and Rouse wrote.
So-called core inflation, which strips out the volatile food and energy prices, has already shown signs of easing, they said, and is now running at an annualized rate of 4.2 percent this quarter, down from 4.5 percent in the first quarter of this year and 6 percent in the final quarter of 2021.
They also pointed to inflation as a global phenomenon, reaching 8.6 percent in the eurozone and 9.1 percent in the United Kingdom. And a strong U.S. labor market — having recovered from all the job losses during the pandemic shutdowns — is now “in a better position than many other countries to transition from an historic recovery to lower inflation and stable and steady growth,” they wrote.
Stemming the elevated public concern over inflation may be pivotal to Democratic hopes of passing a downsized “Build Back Better” package that could raise roughly $1 trillion in new revenue over a decade, with half of the money going toward deficit reduction. The package is likely to offer some combination of prescription drug savings and energy tax credits, among other things.
The key Democratic holdout on the partisan budget reconciliation package, West Virginia Sen. Joe Manchin III, has repeatedly stressed the need to curb inflation as he considers any compromise legislation.
“My main concern is this: How do we bring inflation down, and how quick can we do it?” Manchin told CNN this week, when asked about reconciliation talks.
Republicans are betting that inflation will be their winning ticket to campaign victories this fall, when they hope to gain control of Congress.
A group of GOP Senate Finance panel members scheduled a news conference Wednesday after the Bureau of Labor Statistics report is out. They plan to discuss “Democrats’ plans to impose $1 trillion in tax hikes on all Americans, even as the economy faces runaway inflation, and rising odds of a recession and stagflation,” according to a media advisory.
A New York Times-Siena College Research Institute poll of registered voters conducted last week found that respondents view the economy and inflation as the most important problems facing the country.
Of those polled, 78 percent said inflation would be “extremely important” to how they vote in November. And Biden’s job approval, typically a barometer for how the president’s party fares in midterm elections, was just 33 percent.
Green shoots?
The June CPI reading is expected to be a harsh one for U.S. households’ wallets, though perhaps with some positive signs.
Economists generally believe the headline year-over-year number will top the 8.6 percent figure reported for May, with the Federal Reserve Bank of Cleveland’s model predicting inflation hit nearly 8.7 percent last month, for example. The monthly rise is expected to be similar to June’s at 1 percent.
But core CPI, excluding food and energy, is expected to decline from 6 percent over the previous 12 months to something in the 5.7 percent ballpark. And since June, the monthly rise is expected to come in around 0.5 percent, down slightly from a month earlier.
Economists — including at the Fed, though they use a different measurement, the personal consumption expenditures price index — typically look to core inflation for underlying signs of price shifts since food and energy costs are tied to global commodity markets and aren’t necessarily impacted by Fed policy.
But grocery bills and prices at the pump are among those most visible to consumers. And despite the recent decline in gasoline prices, there are signs it may not last.
“But we’re not completely out of the woods yet — we could also see a sharp reversal in the decline,” Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks retail motor fuel costs, wrote in a blog post this week. “There remains the risk of a spike in prices that could send us to new record levels in August, should any disruptions occur.”
Peter Cohn contributed to this report.
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