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      Up, up and away: will rising prices blow Democrats’ midterms hopes off course?

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      Up, up and away: will rising prices blow Democrats’ midterms hopes off course?Inflation hit 8.5% in March as a mix of post-pandemic demand, price gouging and the Ukraine war dragged down Biden’s ratings In the days leading up to the release of the US labor department’s latest inflation report, the White House tried to deflate expectations. White House officials said they expected the March inflation rate to be “extraordinarily elevated” because of rising gas prices, driven largely by war in Ukraine.Unfortunately for Joe Biden and his fellow Democrats, they were proven right. The inflation report, released on Tuesday, showed US prices increased by 8.5% between March 2021 and March 2022 – the highest level of US inflation since 1981.US inflation climbed to 8.5% in March, highest rate since 1981Read moreThe White House tried to downplay concerns last year by arguing price increases were caused by the coronavirus pandemic and would prove “transitory”. Now, more than a year after vaccines became widely available, Democrats are grappling with how to help families struggling under the weight of inflation. Centrists and progressives alike warn that unless Democrats come up with an effective plan, Republicans could be on the way to a historic victory this November.Democrats’ prospects in the midterm elections were already considered lackluster at best. The president’s party usually loses seats, particularly the House, in midterm years. Democrats have very little margin for error, given slim majorities. Biden’s approval rating, in the low 40s for months, is not helping matters.Republicans are clearly aware of the opportunity they have. On Tuesday, hours after the inflation report was released, the Senate minority leader, Mitch McConnell, said the “atmosphere for Republicans is better than it was in 1994” – when the party flipped eight Senate seats and gained a net of 54 House seats.“From an atmospheric point of view, it’s a perfect storm of problems for Democrats because it’s an entirely Democratic government,” McConnell said.Voters’ concerns over inflation are certainly contributing to Democrats’ electoral woes. A CNBC poll this month showed 48% of Americans chose inflation as the number one or two issue facing the country, making it the most common answer among respondents.“This issue is top-of-mind for voters,” said Kelly Dietrich, chief executive of the National Democratic Training Committee, which trains candidates. “I think it’s going to stay top of mind because it directly affects them every day. And successful candidates need to address it directly.”The White House has tried to deflect criticism over inflation by blaming high gas prices on Vladimir Putin and the war in Ukraine. Speaking in Menlo, Iowa, on Tuesday, Biden noted that more than half of the March inflation was caused by the rise in gas prices.“Even as we work with Congress, I’m not going to wait to take action to help American families,” Biden said. “I’m doing everything within my power, by executive orders, to bring down the prices and address the Putin price hike.”Biden has indeed taken steps to curb gas prices. He announced on Tuesday that his administration would approve an emergency waiver to expand use of biofuels, and he has pledged to release a million barrels a day from the US Strategic Petroleum Reserve, for the next six months.But the price increases the country has seen extend well beyond gasoline, and economists warn that inflation will probably remain elevated in the coming months.Austan Goolsbee, an economics professor at the University of Chicago who chaired the Council of Economic Advisers under Barack Obama, said: “There are two questions. One is, is this peak inflation? But even if it is peak inflation and the numbers are coming down, what are they going to come down to?”Goolsbee noted that so-called “core inflation”, which excludes the more volatile prices of gas and food, rose by just 0.3% last month. That increase was less than most economists expected, providing some hope of inflation cooling off in the near future.“That was a welcome surprise, but I don’t think anybody should kid themselves,” Goolsbee said. “There’s a long way to go before prices, inflation would be anywhere considered back to normal.”For Democrats, that likelihood means their approach has had to change. Instead of claiming price increases will prove temporary, Democrats are acknowledging the reality of tightened budgets and trying to make a case for how they can help.“The good news is the entire Democratic party is very focused on inflation,” said Gabe Horwitz, senior vice-president of the economic program at Third Way, a center-left thinktank. “We are well past this time last year, when there was a question over whether it was going to be transitory or not. It’s here, it’s real, it looks like it’s going to stay at least for a little while.”As Democrats look ahead to November, strategists are urging candidates to pitch an economic vision that will both improve working Americans’ finances and mobilize voters.“First and foremost, American families need help,” Dietrich said. “Secondly, to get them more help Democrats need more wins to improve our standing to continue these policies.”But enacting those policies has proven difficult. The Build Back Better Act, a $1.9tn package that included provisions to lower healthcare and childcare costs, stalled in the Senate due to opposition from Joe Manchin, a centrist Democrat.The West Virginia senator has been outspoken about his frustrations over high inflation, criticizing fellow Democrats who call for more spending as prices rise.“Here is the truth: we cannot spend our way to a balanced, healthy economy and continue adding to our $30tn national debt,” Manchin said on Tuesday, in response to the latest inflation report.Manchin’s stance has outraged progressives, who insist high inflation underscores the urgent need to pass Build Back Better and provide assistance to families.“Americans are being price-gouged. Inflation is hitting their bottom line, and the number one job of any politician is to raise the standard of living of their constituents,” said Joseph Geevarghese, executive director of the progressive group Our Revolution.Looking ahead to the midterms, Geevarghese added: “It’s already going to be very difficult to win, I think. And then you’ve got the obstructionists who are making it harder for the president and our party to prevail.”Horwitz said he remained optimistic that Democrats will be able to pass some version of Build Back Better that will lower costs for families. Manchin has indicated he would be open to a proposal if it did not add to the federal deficit. That would require Democrats to further trim spending but could give them a victory to sell to voters.“You can do both,” Horvitz said. “You can have a plan that raises a significant amount of money by changing the tax code, and you can use some of that money to pay down debt and deficits. And you can use some of that money for programs that alleviate inflation and help consumers.“It is not a slam dunk, but it is something that could happen. We’re going to know more in the next two months about how likely that is.”TopicsUS politicsUS midterm elections 2022InflationDemocratsJoe BidenJoe ManchinanalysisReuse this content More

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      US inflation climbed to 8.5% in March, highest rate since 1981

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      US inflation climbed to 8.5% in March, highest rate since 1981War in Ukraine drives up energy costs as figures strengthen expectations Federal Reserve will raise interest rates next month Prices in the US climbed at their highest rates since 1981, rising 8.5% over the year to the end of March as the war in Ukraine drove up energy costs for Americans, the labor department announced on Tuesday.The latest Consumer Price Index (CPI) – which measures the prices of a basket of goods and services – comes after the index rose by 7.9% in the year through February, the fastest pace of annual inflation in 40 years.Driven up by continuing supply chain problems, soaring demand and rising energy prices, inflation is now at levels unseen in the US since Ronald Reagan took the White House from Jimmy Carter.Biden heads to Iowa to unveil plan to reduce gas prices as inflation soars – liveRead moreThe price increases are broad – with the cost of rent, gas and food causing particular hardship for lower income Americans and represent a major blow to the Biden administration, already facing tough odds of retaining control of Congress in November’s midterm elections.Soaring gas prices were the main driver of the rise. The gasoline index rose 18.3% in March and accounted for over half of all the items’ monthly increase. Gas prices have begun to fall, in a sign that some economists have argued may suggest inflation has reached its peak.The food index rose 1% in March compared with February, and is up 8.8% compared with the prior 12 months. Canned fruit and vegetable prices rose 3.8% from February to March, rice prices rose 3.2%, potatoes 3.2% and ground beef 2.1%.Andrew Hunter, senior US economist at Capital Economics, said energy prices would come down in the months ahead and there were signs that price pressures appear to be moderating.But, he added, the figures were likely to strengthen the Federal Reserve’s plan to increase interest rates as it struggles to tamp down inflation.“With Fed officials sounding more hawkish by the day, the March data won’t change their plans to up the pace of rate-hikes to 50 basis points per meeting from next month. Even so, it does support our view that, having been slow to realize that the initial surge wasn’t transitory, Fed officials are now being a bit too pessimistic about how quickly inflation will drop back,” he wrote in a note to investors.The White House warned ahead of the report it was expecting a bad set of figures. On Monday White House press secretary Jen Psaki told reporters that the labor department’s previous report had not included the majority of the jump in oil and gas costs caused by the Kremlin’s invasion of Ukraine.“We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike,” Psaki said.There are two versions of the CPI, one that includes all the prices consumers face and another – core CPI – which excludes food and energy prices, which tend to be more volatile. Core prices climbed 6.5% in the year through March, up from 6.4% in the year through February.The core index did suggest the pace of inflation was slowing, rising 0.3% from February, compared with 0.5% the prior month.Psaki said the administration expected a wide disparity between the two measures because of the soaring price of gas. Nationally the average price of a gallon of gas is now $4.11, compared with $2.86 a year ago, according to AAA.“At times, gas prices were more than one dollar above pre-invasion levels, so that roughly 25% increase in gas prices will drive tomorrow’s inflation reading,” Psaki said.Joe Biden addressed the latest inflation figures at a speech in Des Moines, Iowa, where he announced plans to use more ethanol in US fuel during the summer in an attempt to tackle high gas prices. “I am doing everything in within my executive power to bring down the Putin price hike,” he said. TopicsUS economyInflationEconomicsUS politicsnewsReuse this content More

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      The Risk Posed by Global Inflation

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      Since the reopening of national economies after COVID-19 lockdowns, inflation has been rising around the world. This change in the macroeconomic environment caught policymakers off guard in terms of adapting inflation forecasting models and assessing the causes of this evolution. As a result, old debates have resurfaced about the risks and opportunities of inflation and how best to restore price stability.

      Despite the rapid surge, inflation was not totally unexpected since it is partially attributable to measures taken to reopen national economies, resulting in increased demand and disruptions of supply chains and production, says Archana Sinha, the head of the Department of Women’s Studies at the Indian Social Institute. In this sense, the current inflationary environment differs from the one in the late 1970s and may prove only transitory.

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      There are, however, other drivers of inflation that may prove more long-lasting. This includes, as Domingo Sugranyes of the Pablo VI Foundation points out, decarbonization and economic concentration, allowing excessive pricing power. Additional factors are rising property and stock prices, as well as the increase of raw material prices, Etienne Perrot explains.

      As a result, as Valerio Bruno mentions, central banks’ instruments, such as raising interest rates, may not suffice to reverse current inflationary pressures. Bruno, a researcher, says that we can “expect a long period of high inflation.” That being said, it is far from certain that central banks are willing to use these instruments because of their concern with financial stability that a selloff on financial markets may jeopardize.

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      From a socioeconomic perspective, Andrew Cornford recalls that inflation is not a “uniform problem” since its effects vary among countries, sectors and groups. The main problem, Bruno points out, is that “the wages of workers, in particular the middle class, suffer greatly from a declining purchasing power. If wages are not adjusted to inflation, consumptions and companies’ profits are affected, leading to a possible economic recession.”

      On the other hand, inflation may benefit debtors by depreciating their debts. However, Cedric Tille, a professor in macroeconomics, warns that “any persistent inflation will raise the cost of additional borrowing” in the future and therefore “any gain from inflation for some actors is likely to be temporary.” For instance, Sugranyes says, “many weaker debtors will find growing difficulty in refinancing at higher interest rates.”

      The current rise of inflation pressure may prove to be only temporary — not inflation in the pure sense — but it has to be taken seriously because it could dash hopes of economic recovery and weigh on the morale of populations exhausted by waves of social restrictions.

      By Virgile Perret and Paul Dembinski

      Note: From Virus to Vitamin invites experts to comment on issues relevant to finance and the economy in relation to society, ethics and the environment. Below, you will find views from a variety of perspectives, practical experiences and academic disciplines. The topic of this discussion is: What are the main threats, but also possibly the main opportunities, related to inflation?

      “… inflation is not new … ”

      “Inflation is not new; it was hidden behind rising property and stock prices, leading to properties disparities. As international competition has diminished, the rise in energy and raw material prices has a direct impact on consumer goods. Its social effects (on pensioners and various marginal groups), as well as its economic consequences for long-term investments (distortions) and interest rates (rise), must be taken into account. On the other hand, inflation favors, for a time, companies, indebted households and massively borrowing states. Debtors become more credible in financing the investments needed for the ecological transition”

      Etienne Perrot — Jesuit, economist and editorial board member of the Choisir magazine (Geneva) and adviser to the journal Etudes (Paris)

      “… any gain from inflation for some actors is likely to be temporary … ”

      “While inflation has a short-run benefit for debtors, one must bear in mind that these debtors will borrow additional amounts in the future. Any persistent inflation will raise the cost of these additional borrowing, including a term premium. Therefore, any gain from inflation for some actors is likely to be temporary. Looking through the inflation movements of the coming months, which hopefully will prove temporary, the reasons underpinning central banks’ mandates of symmetric price stability remain as valid as they have ever been.”

      Cedric Tille ­— professor of macroeconomics at the Graduate Institute of International and Development Studies in Geneva

      “… inflation does not entail any real benefit …”

      “Inflation does not entail any real benefit for most governments and businesses. Although debts may be depreciated in the long term, many weaker debtors will find growing difficulty in refinancing at higher interest rates and will see financial flows fleeing toward ‘safer’ harbors. There are objective reasons for cost increase, like decarbonization or restructuring of supply chains, which should lead us to admit that we are slightly poorer than we thought. Concentration also may allow business excessive pricing power. The vicious circle of inflation is an illusionary way of denying these facts, leading to even worse impoverishment. Some governments may be tempted to print money, [but] there will be growing pressure for automatic indexation of salaries and pensions. Difficult challenges!”

      Domingo Sugranyes — director of a seminar on ethics and technology at Pablo VI Foundation, former executive vice-chairman of MAPFRE international insurance group

      “… policy responses must address distributional dimensions … ”

      “Inflation is not a uniform problem. It varies among countries (high, middle and low-income), among income groups within countries, among goods and thus producing sectors (e.g., energy and primary commodities used for food), and amongst services (e.g., health-related, finance and travel). As is generally acknowledged, policy responses — both national and those involving international finance and aid — must address distributional dimensions, avoiding links to austerity and other attached conditions likely to increase poverty. In developed countries, policy design will frequently be handicapped by a lack of pertinent data, especially regarding wealth in the form of financial assets and tax liabilities. An option here would be a once-and-for-all capital levy high enough to help a government to deal with immediate increases in its financial liabilities, while leaving permanent solutions to the problem of enormous inequalities of wealth to be attained as part of a future response to longer-term needs and objectives.”

      Andrew Cornford — counselor at Observatoire de la Finance, former staff member of the United Nations Conference on Trade and Development (UNCTAD), with special responsibility for financial regulation and international trade in financial services

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      “… the risks of inflation far outweigh the possible benefits … ”

      “It seems to me that the risks of inflation far outweigh the possible benefits. To make effective use of the tools available to central banks, it would be necessary to understand the real causes of inflation (a ‘drugged’ financial economy, monopolies and oligopolies, or the costs of raw materials). Unfortunately, central banks’ instruments, such as raising interest rates, are not always sufficient to reverse this trend. We can therefore expect a long period of high inflation, with ‘classic’ safe-haven assets as gold reaching historic highs. The main problem with inflation is that the wages of workers, in particular the middle class, suffer greatly from a declining purchasing power. If wages are not adjusted to inflation, consumptions and companies’ profits companies are affected, leading to a possible economic recession.”

      Valerio Bruno — researcher in politics

      “… inflation at these levels is a cause for concern …”

      “Labor market conditions are improving but tempestuous, and the pandemic continues to threaten life and economic activity. The rapid reopening of the economy has brought a sharp advance in inflation. These are challenging times for the public. The dynamics of inflation are complex, and inflation can be assessed from a number of diverse perspectives, including the absence of inflation pressures; moderating inflation in high inflation items; wages; and long-term inflation expectations. Businesses and consumers widely report upward pressure on prices and wages. Inflation at these levels is a cause for concern. This assessment is a critical and ongoing one as we continue to monitor inflation data against each of these perspectives.

      Archana Sinha — head of the Department of Women’s Studies at the Indian Social Institute in New Delhi, India

      *[An earlier version of this article was published by From Virus to Vitamin.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Tackling inflation is ‘top priority’, says Biden in State of the Union address

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      Tackling inflation is ‘top priority’, says Biden in State of the Union addressPresident acknowledges ‘too many families are struggling’ as climbing prices hit him in polls Getting runaway prices in America under control is “my top priority” Joe Biden told Congress on Tuesday in his first State of the Union address.Soaring inflation – now at a 40-year high – has hurt Biden in the polls and the US president bluntly acknowledged “too many families are struggling to keep up with the bills. Inflation is robbing them of the gains they might otherwise feel”.Tell us: how are rising US prices changing the way you shop, work and live ?Read moreThe US has added 6.6m jobs since Biden took office and the unemployment rate has dropped to 4%, down from a pandemic high of 14.8% in April 2020. But soaring inflation has overshadowed his economic successes, rising at an annual rate of 7.5% over the year through January.Biden said he would cut energy costs, the price of prescription drugs, and childcare in the US while ​​increasing competition between companies and making sure “corporations and the wealthiest Americans start paying their fair share”.“Economists call it ‘increasing the productive capacity of our economy’. I call it building a better America,” said Biden.Biden’s plans face heavy headwinds. On Tuesday, oil prices spiked again, passing $100 a barrel again as the war in Ukraine escalated. The rise will further increase costs for US consumers who are already paying high prices at the pump due to Covid 19-related issues. The average gallon of gas in the US was $3.61 as of 1 March, compared with $2.72 a gallon one year ago.Many of Biden’s initiatives will also struggle to pass in a deeply divided Washington as the US heads into midterm elections this November, with polling suggesting Republicans could take control of Congress.TopicsJoe BidenInflationUS politicsEconomicsUS economyDemocratsnewsReuse this content More

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      ‘Leaders lead during crises’, White House says, as Biden polling plummets

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      ‘Leaders lead during crises’, White House says, as Biden polling plummetsPress secretary promises ‘optimism’ in face of war and inflation despite worrying Post-ABC poll two days before State of the Union

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      Two days ahead of his first State of the Union address, with war raging in Ukraine and inflation rising at home, Joe Biden’s approval rating hit a new low in a major US poll.US inflation is at a 40-year high. Russia’s war will only make it worseRead moreThe survey from the Washington Post and ABC News put Biden’s approval rating at 37%. The fivethirtyeight.com poll average pegs his approval rating at 40.8% overall.Biden’s predecessor, Donald Trump, had historically weak approval ratings throughout his presidency but ended it, according to fivethirtyeight, at 38.6%.Jen Psaki, the White House press secretary, told ABC’s This Week Biden would acknowledge challenges but also project optimism when he speaks to Congress and the nation at the Capitol on Tuesday night.“If you look back when President [Barack] Obama gave his first State of the Union, it was during the worst financial crisis in a generation,” Psaki said. “When President [George W] Bush gave his first State of the Union, it was shortly after 9/11.“Leaders lead during crises. That’s exactly what President Biden is doing. He’ll speak to that, but he’s also going to speak about his optimism about what’s ahead and what we all have to look forward to.”The Post-ABC poll found that 55% of respondents disapproved of Biden’s performance, with 44% strongly disapproving. Partisan divides were evident, with 86% of Republicans and 61% of independents disapproving while 77% of Democrats approved of Biden’s performance in 13 months in office.The poll followed others which have sounded warnings for Biden, including a Harvard survey which found a majority of Americans saying Russia would not have invaded Ukraine if Trump was still in the White House.Fox News, meanwhile, found that more Democrats had a negative view of Trump and more Republicans disapproved of Biden than either did of Vladimir Putin.Biden faces strong political headwinds as midterm elections loom. The party in the White House usually suffers in its first midterm contest.According to the Post-ABC poll, 50% of Americans want Republicans – the party whose supporters attacked Congress on 6 January 2021 – to take control on Capitol Hill.Most analysts expect that at least the House will fall to the GOP, though intra-party divisions, particularly over Trump and his political ambitions, could yet damage Republicans in November.Biden has implemented wide-ranging sanctions against Russia and Putin himself, helped marshal world opinion against Russia and sent US troops to allies in Europe.Nonetheless, the Post-ABC poll found that 47% of respondents disapproved of the president’s handling of the Ukraine crisis.Russia invaded as the poll was being conducted this week.The knock-on effects of the Ukraine war on the US economy are widely feared. In the Post-ABC poll, Biden’s approval rating on economic matters stood at the same low level as his overall approval rating, 37%. Three-quarters of respondents rated the US economy negatively.The Post and ABC also said Biden’s approval on handling the coronavirus pandemic continues to slide, with 44% approving and 50% disapproving.The poll also asked about two Republican attack lines: that Biden is not tough enough to stand up to Putin and that at 79 he is not mentally sharp enough to meet the demands of the job.“On the question of whether he is a strong leader,” the Post reported, “59% say no and 36% say yes – closely aligned with his overall approval rating. Among independents, 65% say he is not strong.“On an even more personal question, 54% say they do not think Biden has the mental sharpness it takes to serve as president, while 40% say he does.”TopicsJoe BidenUS politicsInflationUkraineEconomicsEuropenewsReuse this content More

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      Why the White House stopped telling the truth about inflation and corporate power | Robert Reich

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      Why the White House stopped telling the truth about inflation and corporate powerRobert ReichStarbucks, McDonald’s, Chipotle, Amazon – all protect profits by making customers pay more. We need the political courage to say they can and should cover rising costs themselves The Biden White House has decided to stop tying inflation to corporate power. That’s a big mistake. I’ll get to the reason for the shift in a moment. First, I want to be clear about the relationship between inflation and corporate power.Share the Profits! Why US business must return to rewarding workers properly | Robert ReichRead moreWhile most of the price increases now affecting the US and global economies have been the result of global supply chain problems, this doesn’t explain why big and hugely profitable corporations are passing these cost increases on to their customers in the form of higher prices.They don’t need to do so. With corporate profits at near record levels, they could easily absorb the cost increases. They’re raising prices because they can – and they can because they don’t face meaningful competition.As the White House National Economic Council put it in a December report: “Businesses that face meaningful competition can’t do that, because they would lose business to a competitor that did not hike its margins.”Starbucks is raising its prices to consumers, blaming the rising costs of supplies. But Starbucks is so profitable it could easily absorb these costs – it just reported a 31% increase in yearly profits. Why didn’t it just swallow the cost increases?Ditto for McDonald’s and Chipotle, whose revenues have soared but who are nonetheless raising prices. And for Procter & Gamble, which continues to rake in record profits but is raising prices. Also for Amazon, Kroger, Costco and Target.All are able to pass cost increases on to consumers in the form of higher prices because they face so little competition. As Chipotle’s chief financial officer said, “Our ultimate goal … is to fully protect our margins.”Worse yet, inflation has given some big corporations cover to increase their prices well above their rising costs.In a recent survey, almost 60% of large retailers say inflation has given them the ability to raise prices beyond what’s required to offset higher costs.Meat prices are soaring because the four giant meat processing corporations that dominate the industry are “using their market power to extract bigger and bigger profit margins for themselves”, according to a recent report from the White House National Economic Council (emphasis added).Not incidentally, that report was dated 10 December. Now, the White House is pulling its punches. Why has the White House stopped explaining this to the public?The Washington Post reports that when the prepared congressional testimony of a senior administration official (Janet Yellen?) was recently circulated inside the White House, it included a passage tying inflation to corporate consolidation and monopoly power. But that language was deleted from the remarks before they were delivered.Apparently, members of the White House Council of Economic Advisers raised objections. I don’t know what their objections were, but some economists argue that since corporations with market power wouldn’t need to wait until the current inflation to raise prices, corporate power can’t be contributing to inflation.This argument ignores the ease by which powerful corporations can pass on their own cost increases to customers in higher prices or use inflation to disguise even higher price increases.It seems likely that the Council of Economic Advisers is being influenced by two Democratic economists from a previous administration. According to the Post, the former Democratic treasury secretary Larry Summers and Jason Furman, a top economist in the Obama administration, have been critical of attempts to link corporate market power to inflation.“Business-bashing is terrible economics and not very good politics in my view,” Summers said in an interview.Wrong. Showing the connections between corporate power and inflation is not “business-bashing”. It’s holding powerful corporations accountable.Whether through antitrust enforcement (or the threat of it), a windfall profits tax or price controls, or all three, it’s important for the administration and Congress to do what they can to prevent hugely profitable monopolistic corporations from raising their prices.Otherwise, responsibility for controlling inflation falls entirely to the Federal Reserve, which has only one weapon at its disposal – higher interest rates. Higher interest rates will slow the economy and likely cause millions of lower-wage workers to lose their jobs and forfeit long-overdue wage increases.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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