Both parties grappled for position Wednesday on how to frame a rapid run-up in consumer prices as midterm elections approach, with Republicans pointing to big cost increases over the past year and Democrats focusing on those price rises moderating in recent months.
The Bureau of Labor Statistics reported that the consumer price index for all goods and services on average rose by 7 percent in December over a year earlier, the largest reading in nearly 40 years. Excluding volatile food and energy prices, including gasoline costs that were higher by nearly 50 percent, the average price rise was 5.5 percent over 12 months, highest in 31 years.
Republicans were the first to comment publicly, having honed their press releases targeting “Bidenflation” well in advance.
“Despite the glaring warning signs, President [Joe] Biden’s only strategy has been to spend more and do nothing to get ahead of these soaring costs,” House Minority Leader Kevin McCarthy, R-Calif., said in a statement. “This upward trajectory speaks for itself, and it all happened under Biden’s watch.”
On the other hand there were signs that price increases were easing somewhat from recent highs, with gasoline and other energy costs as well as several food categories — including meats, poultry, fish, butter and some fresh vegetables — dipping in December from a month earlier. Overall, December marked a second consecutive monthly decline with the CPI for all goods and services rising by 0.5 percent, down from a yearly high of 0.9 percent in October.
In a statement, Biden said the “meaningful” monthly improvement shows that “we are making progress in slowing the rate of price increases.” Cognizant of the political peril his party faces in November, Biden said the inflation report “underscores that we still have more work to do, with price increases still too high and squeezing family budgets.”
Republicans sense political gold in consumers paying more at the gasoline pump and seeing empty grocery store shelves as supply chains remain disrupted. They point to the $1.9 trillion pandemic relief package enacted last March, which no GOP lawmaker supported, as well as the roughly $2 trillion social program expansion and climate change mitigation bill that remains stalled in the Senate.
Gasoline costs are tied largely to global oil prices, which aren’t impacted by U.S. fiscal policy. Nonetheless prices are right back up to where they were in November before the omicron variant reared its head, when Biden announced steps intended to try to curb rising costs, such as releasing millions of barrels from the Strategic Petroleum Reserve.
And other consumer prices are up sharply, fueled by consumer demand driven by government aid — including stimulus checks, unemployment benefits and expanded child tax credits — that flowed right around the time the economy was reopening due to widespread vaccine availability. That led to supply bottlenecks that continue to drive up prices.
For example, used car and truck prices are up more than 37 percent over a year earlier, while prices for household furnishings, medical equipment and men’s clothing saw their largest-ever yearly increases, the BLS said. The cost of services hasn’t been spared either, with prices for hotel stays also hitting a record year-over-year increase.
Inflation is a factor in battleground states leading up the midterm elections, which will decide control of an almost evenly divided Congress. Some analysts cite voters’ concern over higher prices in part to explain Virginia GOP Gov.-elect Glenn Youngkin’s victory last November in a state Biden won by 10 points a year earlier.
American Bridge 21st Century, a Democrat-affiliated super PAC, in a Wednesday release accused Republicans of “cheering on inflation while President Biden and congressional Democrats work to help families who are struggling to pay their bills.”
They and other Democrats, such as Virginia Rep. Donald S. Beyer Jr., chairman of the Joint Economic Committee, continued to praise the “Build Back Better” bill as a disinflationary force that will drive down health care and child care costs and put more money in workers’ pockets through economic growth.
In his statement Wednesday, Biden credited the March 2021 relief law with fueling an economic expansion that’s mitigating the impact of price increases on consumers, boosting wages and driving down the unemployment rate to its lowest level since early 2020, pre-pandemic.
But he didn’t mention the stalled budget reconciliation bill, which Sen. Joe Manchin III, D-W.Va., says he won’t support in its current form.
Among other things that bill would continue the monthly child credit payments worth up to $300 per child that stopped flowing after Dec. 15. It’s not clear what will happen to the new budget package given Manchin’s opposition, and he’s cited inflation as one of his main concerns. "It's hitting us very hard," Manchin said Wednesday.
Rep. Elissa Slotkin, D-Mich., one of the most vulnerable House incumbents in a newly drawn district, said she has concerns about the monthly child credit payments stoking inflation, unlike other programs in the bill that will take time to get rolling.
“I think that's one where we better look pretty darn closely at what it does to inflation,” Slotkin said Wednesday. “Those child tax credits, I think you have to be honest, that there's got to be a role in putting more money into the system and inflation, and until we understand exactly what that role is, we should be very cautious about renewing them.”
Other Democrats were mostly taking the inflation data in stride, pointing to the downward trend and the Fed’s forthcoming actions, including a series of short-term interest rate increases likely starting in March.
“Hopefully inflation at this level will be short-lived and will be addressed by at some point higher interest rates, steps to eliminate the bottlenecks in the supply chain,” Sen. Richard Blumenthal, D-Conn., told reporters Wednesday.
Overall, Wednesday’s report was a mixed bag and roughly in line with economists’ forecasts. Combined with the Federal Reserve’s commitment to combat inflation through scaling back its pandemic-era monetary stimulus, the new inflation numbers didn’t rattle investors as much as they have in recent months.
Stock prices were up on Wednesday and Treasury bond yields retreated from recent highs, a sign that global investors don’t think inflation will erode as much of their returns as previously expected.
The Fed’s preferred inflation gauge is typically lower than the CPI, and central bankers latest’ median projections show inflation moderating from 5.3 percent last year to 2.6 percent this year and continuing to trend down. Investors’ inflation expectations over the next five years also show they don’t believe prices will remain this high for much longer.
Consumers aren’t so sure, however, and the latest survey conducted by the Federal Reserve Bank of New York in mid-December showed a belief that prices will still be 6 percent higher a year from then.
That’s not a great sign for incumbents running for reelection, and the BLS on Wednesday also released data showing average hourly and weekly earnings declining over the year ending in December when adjusted for inflation. That means wage gains last year didn’t keep up with price increases, although government relief supplemented inflation-adjusted earnings losses.
However, another risk is a phenomenon known as “wage push inflation,” where wages do keep pace with inflation and end up driving further price increases since employers need to charge consumers more to avoid harming their own bottom line. Diane Swonk, chief economist at accounting and advisory firm Grant Thornton LLP, told a forum hosted by the Peter G. Peterson Foundation Wednesday that “one of the Fed’s greatest concerns” is that the current elevated inflation rate “could actually get baked into wages given the unusual labor market power that workers have today.”
Paul M. Krawzak, Lindsey McPherson and Laura Weiss contributed to this report.