The politics of inflation took a sharp turn Wednesday with a report showing consumer prices rose at the slowest pace since the early months of Joe Biden’s presidency.
Republicans have hammered Biden over the cost of groceries, gasoline, utilities and more, saying his $1.9 trillion pandemic relief package and push for electric vehicles were responsible for pushing inflation to a four-decade high. The GOP argument has resonated with voters, but the report on consumer prices for June suggests that inflation has eased dramatically without any of the job losses that some economists and Republican leaders said would occur.
Prices have risen just 3% from a year ago, compared with 9.1% in June 2022, and it's the lowest reading since March 2021.
Unlike a year ago, inflation is mainly coming from a government measure of shelter based on what it would cost to rent a home. This makes the inflation argument somewhat nuanced as data from AP VoteCast, a sweeping survey of the national electorate, shows that the majority of voters last year — 83% of Republicans and 73% of Democrats — own their homes and are largely insulated from higher rental prices.
Biden's team was quick to seize on the inflation report as proof that its policies are delivering results. Defying expectations that Federal Reserve efforts to combat inflation would cause layoffs, the unemployment rate is healthy at 3.6%.
“Inflation is down by two-thirds over the past year,” said Jared Bernstein, chair of the White House Council of Economic Advisers. “It is particularly notable and highly consistent with Bidenomics to see this steep a decline in the rate of inflation while employment remains so uniquely strong."
The president was quick to take credit, with the White House issuing a statement from him: “Good jobs and lower costs: That’s Bidenomics in action.”
Sen. Rick Scott, R-Fla., said Biden was “delusional” for saying his policies are helping U.S. families.
“We’ve got to get this skyrocketing inflation and reckless spending under control and stop expecting our kids and grandkids to pay the bill,” Scott said. "That’s how we protect the American dream.”
But Republicans are tweaking the data they use on inflation, putting a greater emphasis on total price increases over the entire Biden presidency instead of the annual and monthly figures that economists commonly use. The office of Senate Minority Leader Mitch McConnell, R-Ky., issued a breakdown of price increases over the entirety of Biden's tenure to say that inflation is still a problem, citing a 39% increase in airfare, 18.8% increase in furniture prices and 52% increase in gas.
The administration wants voters to focus on the downward trend. One key statistic being measured by the White House is how many gallons of gas can be purchased on average for an hour of work. Republican lawmakers and candidates blasted Biden for record prices at the pump last year, a message that helped the GOP secure a House majority in 2022.
But by an internal White House analysis, this argument looks outdated: A single hour of work 12 months ago could only pay for 5.5 gallons of gas, a figure that has since risen to a bit more than 8 gallons. The increase appears to reflect a 27% drop in prices at the pump compared with a year ago, and also average wage gains of about 5%.
Biden has long denied that his $1.9 trillion in COVID-19 relief money helped to spark inflation. Broken supply chains and Russia's invasion of Ukraine, he said, were the main culprits. This argument had limited appeal in last year's elections. AP VoteCast found that 54% of voters blamed Biden's politics for the higher inflation, while 46% said higher prices were due to factors outside his control.
Biden's aides largely attribute the decline in inflation to giving the Fed the independence to raise interest rates as needed and the unsnarling of supply chains and other efforts, such as last year's Inflation Reduction Act, that signaled the government would find ways to lower prices for prescription drugs and promote investments in clean energy and manufacturing.
The White House also feels reasonably positive about the path of inflation because housing is behind much of the current increase in prices. The government's measure of shelter inflation depends on rents, and a forecast by White House economists suggests home rental prices will ease in the months to come.
As the 2024 presidential election approaches, Biden has gone on the offensive about the economy, giving speeches that try to draw a link between his actions and new construction projects and investments by companies. The economy has been a vulnerability for Biden, with just 34% approving of his leadership on the issue in a June AP-NORC poll.
Still, the change in the composition of what is driving inflation could be critical for how voters think about prices and politics.
In 2022, VoteCast found that nearly all voters said inflation was at least a minor factor in their votes. That included 47% who said groceries and food costs were the most important element for them; the majority of these voters backed Republicans.
An additional 16% said gas squeezed them the most, and about two-thirds of this group voted for the GOP. But of the voters who identified housing as their top inflationary burden, two-thirds supported Democrats.
Lael Brainard, director of the White House National Economic Council, told reporters last month that “there's every reason to think” inflation will be close to the Fed's 2% target by the November 2024 election.
Still, the progress does not mean inflation rates are automatically going downward and that the economy is guaranteed to escape a recession. White House officials acknowledged on Wednesday that the effort to bring down inflation is incomplete. The Fed is poised to raise rates and keep them high until inflation appears to be headed to the central bank's target.
Michael Strain, director of economic studies at the center-right American Enterprise Institute, said he is skeptical that demand in the economy “can weaken to the point that the Fed can credibly claim to have met its inflation target without the economy entering a mild recession and the unemployment rate increasing.”
Skanda Amarnath, executive director of the advocacy group Employ America, said that the odds of a recession have decreased and that lowering inflation has not led automatically to large job losses as many expected. But he cautioned that there are still unknowns.
“When the Fed rapidly hikes, you don’t know what stuff is going to break,” Amarnath said.
