Is Biden responsible for dip in inflation? President's victory lap is premature, experts say
WASHINGTON – President Joe Biden touted progress on inflation Tuesday, even though the government's latest data reinforced concerns.
The yearly pace of inflation declined slightly to 8.3% in August, the Labor Department said. But the core Consumer Price Index, which is considered a better measure of long-term trends, showed a larger-than-expected increase, rising 6.3% compared with a year ago.
Inflation remains a top topic for voters heading into November’s midterm elections.
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Though consumer confidence rose in August, Federal Reserve Chairman Jerome Powell has made clear that the central bank expects to continue raising interest rates to bring inflation under control.
Biden and congressional Democrats have said a recently passed bill that includes a wide array of measures to tackle climate change and health care costs will help ease the pressure on Americans' pocketbooks.
But outside economists do not expect relief anytime soon. In the short term, the Inflation Reduction Act – which Biden signed last month and was celebrated at a White House event attended by hundreds of advocates, lawmakers, local officials and others Tuesday – will have a negligible effect on inflation this year and could either slightly help or slightly worsen it next year, according to the nonpartisan Congressional Budget Office.
Still, Biden called the act “the single most important legislation passed in the Congress to combat inflation and one of the most significant laws in our nation’s history.”
- The Labor Department on Tuesday released the Consumer Price Index data for August. Inflation eased further off a 40-year high in August but remained elevated and prices rose on a monthly basis, undercutting forecasts for an outright decline.
- Core prices, which exclude volatile food and energy items, increased a larger-than-expected 6.3% over last year.
Stocks plunged after the report was released, and the losses widened as the trading day went on.
- The Inflation Reduction Act’s expanded premium subsidies for people who buy health insurance on their own instead of getting it through an employer or government program will help consumers but also boost inflation by adding to demand, the CBO said last month. By contrast, the minimum tax on corporations will do the most among the bill's provisions to curb the rise in prices.
What the White House did
Nearly a month after Biden signed the Inflation Reduction Act into law, he put the spotlight back on it. The act aims to reduce some specific costs for households, such as prescription drug bills for seniors and the cost of making a home more energy-efficient. It also could help reduce overall inflation by raising $238 billion more in new revenue than it spends on new programs, savings that could reduce the federal deficit.
"Deficit reduction is almost always inflation-reducing," Jason Furman, who was President Barack Obama's top economic adviser, wrote in July.
But since the bill passed, Biden agreed to cancel up to $20,000 in federal student loans for tens of millions of borrowers. The cost of that and other changes to the student loan program will more than wipe out the Inflation Reduction Act’s $238 billion in savings, according to the Committee for a Responsible Federal Budget, a nonpartisan watchdog group based in Washington. In addition, Biden has not proposed ways to pay for the $47 billion in emergency spending he requested from Congress this month for monkeypox vaccines, continued efforts to fight COVID-19, aid to Ukraine and help for flood-ravaged Kentucky.
Critics charge the White House with taking credit for deficit reduction that disappeared soon after the Inflation Reduction Act became law. Even without factoring in other spending, many economists had said the Inflation Reduction Act probably would have at best a modest effect on inflation, especially in the short term.
What voters will be paying most attention to in November is how far their paychecks can stretch.
What they are saying
- "It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of health care, prescription drugs and energy," Biden said in a statement Tuesday.
- "While Biden and Democrats take an out-of-touch victory lap today, Americans struggle to fill their grocery carts," Ronna McDaniel, head of the Republican National Committee, said in a statement Tuesday.
- "After taking an important step forward for deficit reduction through the Inflation Reduction Act, the president's student loan announcement represents two steps back," the Committee for a Responsible Federal Budget wrote in an analysis published Monday.
Want to know more? Here's what you missed
Mixed bag:Price of goods may be stabilizing, but service costs remain high, fueling inflation
Relief from spiraling drug prices:Will the Inflation Reduction Act deliver?
Protecting the planet:Here's how the Inflation Reduction Act could save consumers money and fight climate change
Fact check:Inflation Reduction Act will lower cost of health insurance, prescription drugs
Contributing: Paul Davidson and Elisabeth Buchwald