Biden’s Inflation Problem

What’s happening: The year-over-year Consumer Price Index spiked last month to 3.5 percent. Even more concerning, the three-month annualized core CPI, (which excludes volatile food and energy prices) rose to 4.5 percent.

• A problem: Even “supercore” CPI, (which also excludes shelter and rent prices) rose 4.8 percent year over year. Economists such as Paul Krugman previously used supercore CPI to argue inflation was cooling off.

• Context: The Fed has an inflation target of 2 percent.

The Fed: Some expected the Federal Reserve to lower interest rates at its next meeting, which would have signaled a successful “soft landing” (i.e., that reduced inflation was not accompanied by high unemployment). However, the new inflation report makes it exceedingly unlikely the Fed will cut rates.

• Why that’s important: Interest rates set by the Fed impact the ease with which banks and regular people can access loans. Although cutting rates could boost economic growth, it is typically imprudent to do so when inflation is rising, as that would only exacerbate the problem.

Politics: Rising inflation is a reminder of why only 32 percent of voters say the economy has improved over the past two years while 74 percent rate its condition as “fair” or “poor.”

• Not improving: Some have argued that political rhetoric has blinded Americans to improving economic conditions. However, prices have risen by 19 percent since President Biden took office.

• How inflation works: Declines in the the year-over-year inflation rate do not mean price spikes will disappear. This is because inflation is cumulative.

Why it matters: Americans are not content with President Biden’s handling of inflation. Although he is attempting to emphasize issues like abortion and infrastructure, voters in the U.S. and around the world often vote based on their wallets.