As measures of inflation hit a 30-year high, the Biden White House is abandoning its happy talk that inflation would be a short-term side effect of the economic recovery from COVID-19 restrictions.
White House economic adviser Jared Bernstein told Fox Business that inflation will endure longer than the Biden administration had been saying.
His current call is that annual inflation will end at about 4 percent this year and drop to 2.3 percent at some point in 2022. However, even Bernstein said there is no clear idea when in 2022 that might happen.
On Friday, the White House announced that the personal consumption expenditure price index climbed 0.4 percent in August for its sixth straight increase.
The inflation figure for the 12 months ending in August put the number up from 4.2 percent to 4.3 percent, the highest rate since 1991, according to MarketWatch.
Economists have abandoned the White House party line that inflation was a minor, temporary blip.
“It’s still quite an inflationary environment going into next year, and that isn’t going to be good for growth,” said Laura Rosner-Warburton, an economist at MacroPolicy Perspectives, according to The New York Times. “They need to be monitoring things very closely. This is a huge shock.”
She said that although wages are rising, prices in many cases are rising at a faster clip.
The Times noted “a cycle in which consumers buy less while goods and services are becoming more expensive because of supply limits, a situation often called ‘stagflation,'” which was a hallmark of the dire economic times of the 1970s.
“We were sort of one supply chain glitch away from stagflation,” he said. “That seems to be playing out, unfortunately. It’s worrisome for the overall economic outlook and raises serious questions about the wisdom of central bank policies — especially that of the Federal Reserve.
“The likelihood of continued (supply chain) bottlenecks moving from one area to another, which is strikingly reminiscent of what we saw in the early 1970s, suggests that inflation will stay at these elevated levels for longer than we thought,” Roach added. “The Federal Reserve is already beginning to back-pedal on its recent view that these pressures will fade quickly.”
According to the Times, Fed chair Jerome Powell said last week that it is “frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse. We see that continuing into next year, probably, and holding inflation up longer than we had thought.”
Phil Levy, chief economist at the logistics firm Flexport, summed that up: “The interpretation of ‘transitory’ has changed.”
In the midst of this, the Biden White House is under scrutiny for wanting to increase spending.
“Regardless of what the White House press team says, I think people are really seeing the impact of higher prices, day in, day out,” Republican Rep. Bryan Steil of Wisconsin said Thursday, according to the Times.
Steil said “runaway spending” from the federal government might add fuel to the inflationary fire.
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