New inflation numbers ring alarms for Senate Democratic majority
A report by the Labor Department that inflation in March rose by 8.5 percent compared to a year ago is setting off new alarm among Democrats that their Senate majority is in serious trouble.
The bad news for Democrats is that inflation is projected to be a problem for the rest of this year, there’s not much they can do about it in the short term and it is souring Americans’ view of the economy.
Sen. Raphael Warnock (D-Ga.), who is facing a tough reelection race, said inflation is a major cause for concern among voters in his state.
“Right now I’m very focused on the real pinch that people are feeling around rising costs, which is why I introduced my insulin bill, which will cap the cost of insulin. It’s the reason why I’ve introduced the federal tax holiday,” he said.
Warnock is sponsoring bills to cap out-of-pocket insulin costs at $35 a month and to allow states and cities to use federal COVID-19 relief funds to pay for sales tax holidays on items like food and clothing.
Democratic lawmakers acknowledge that while the pandemic continues to weigh on the economy, it will be very difficult to turn around President Biden’s low approval numbers.
“The Senate map is as benign as it’s going to be for Democrats but there’s five tough races for Democrats,” said Jim Kessler, a former aide to Senate Majority Leader Charles Schumer (D-N.Y.) who now serves as executive vice president policy at Third Way, a centrist Democratic think tank.
“The natural order of midterms is you lose about 10 points and if you lose 10 points across the board, that’s four [lost Democratic] Senate seats,” he said. “The wind is in their face.”
Senate Minority Leader Mitch McConnell (R-Ky.) on Tuesday said he thinks the political environment for Republicans this year is shaping up to be even better than it was in 1994, when the GOP picked up 54 House seats and eight Senate seats during former President Clinton’s first midterm election.
“Having been around a while, I can remember good years and bad years for us. The best year we had was 1994 where we got the House back after 40 years and took the Senate as well. This atmosphere for Republicans is better than it was in 1994,” he said at an event hosted by the Kentucky Chamber of Commerce.
Republicans need a net gain of one seat to win control of the 50-50 Senate.
While core inflation abated a bit last month, rising 6.5 percent compared to a year ago, economists predict that prices will continue to rise significantly through Election Day.
“It was predictably ugly. Russia’s invasion of Ukraine is all over the numbers. The surge in oil and other commodity prices drove up energy and food and transportation costs so I think you can connect the dots in this report to what’s going on in Russia and Ukraine,” said Mark Zandi, the chief economist of Moody’s Analytics.
Biden has taken steps to reduce energy prices, such as releasing 1 million barrels of oil a day from the Strategic Petroleum Reserve. The administration also announced this week that it will authorize the sale of gasoline with 15 percent ethanol during the summer to help mitigate costs. The sale of such a high ethanol blend is usually prohibited during the summer to reduce smog.
But there are limits on what the administration and Congress can do on inflation.
Zandi said Democratic lawmakers won’t be able to make an “immediate dent” on inflation but should work on policies “that will help address inflation next year, the year after and the year after that.”
He said “there are some pretty obvious things they could do” such as increasing the housing supply, which he said would help rein in the rapid growth in rents.
“A year from now, the problem is going to be rent growth and the cost of housing, which is one third of the Consumer Price Index,” he said.
The national median rent hit $1,792 in February, an increase of 17 percent compared to the year before.
Kessler, of Third Way, said Congress should find ways to increase immigration levels to address the nation’s labor shortage, another factor behind rising prices.
While Senate and House Democrats tout job gains and the rise in wages under Biden, they are scrambling to respond to Republicans who argue that the wage gains for many Americans have failed to keep up with the rise in prices.
Senate Democrats are making the case that inflation is not Biden’s fault and that its main drivers are the pandemic and Russia’s invasion of Ukraine but that message was undercut Tuesday by Sen. Joe Manchin (D-W.Va.), who blamed the Federal Reserve and the administration for not acting decisively to keep costs down.
“The Federal Reserve and the Administration failed to act fast enough, and today’s data is a snapshot in time of the consequences being felt across the country,” Manchin said in a statement. “Instead of acting boldly, our elected leaders and the Federal Reserve continue to respond with half-measures and rhetorical failures searching for where to lay the blame.”
Zandi disagreed with Manchin’s assessment that the administration bears some of the blame for rising costs for not doing more to curb domestic spending.
“These high inflation are due to two massive global supply shocks. The first being the pandemic, which scrambled global supply chains and labor markets and now the Russian invasion of Ukraine, which has caused oil, food and other prices to go skyward,” he said. “If you want to blame something for this high inflation, I’d put it at the feet of Putin and the pandemic.”
Experts project the year’s inflation reading to remain high, even if the Biden administration manages to bring down energy prices somewhat.
“Under any reasonable scenario, we’re going to end up with high inflation for 2022,” said Marc Goldwein, the senior vice president and senior policy director for the Committee for a Responsible Federal Budget.
“If inflation continues on its current pace, in other words if inflation in the next nine months is basically in the same place as the first three months, then inflation’s going to be nearly 11 percent,” he said. “Inflation has already been so massive in the first three months of this year, there’s pretty much no way that we don’t end up with high inflation over the course of the year.”
Right now the best Democrats can hope for is that inflation is peaking. Core inflation rose 0.3 percent in March compared to February, below economists’ estimate of a 0.5 percent increase.
So while they will still have to play defense in response to GOP attacks over high costs, they can argue that they’re steering the economy in the right direction.
“It feels like we’re at a peak,” said Kessler. “Oil prices are stabilizing and have declined a little bit and China’s going to work itself out with the pandemic, so I think the numbers are going to improve.”
“There will be some improvement and that will help toward the midterms but inflation is going to be an economic factor for people through the year,” he said.
“It’s whether you can sell the improvement,” he added. “Voters need to be convinced that you know what the destination [is] you’re trying to take the country … That’s what they’re going to need to hear on this.”
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