Democrats race to get ahead of inflation
Democrats are racing to get ahead of high inflation as rising prices dampen an otherwise strong recovery.
The U.S. economy has steamed ahead of every other nation hit hard by the COVID-19 pandemic, powering through new variants and other pandemic-related constraints.
The unemployment rate dropped to 4.2 percent in November, the lowest level since February 2020, as the labor force expanded last month and wages rose 5 percent annually. Consumer spending and retail sales have also soared above pre-pandemic highs while rising corporate profits have powered another record-breaking rally in the stock market.
But steadily rising inflation — driven in part by the speed of the rebound — has made it tough for Democrats to sell the recovery.
“If you look at most economic indicators, they’re really in a good place,” Rep. Cheri Bustos (Ill.), a swing district Democrat who will retire at the end of her current term, told The Hill at the Capitol on Thursday.
“But when you’re talking about pocketbook issues, when you’re going to fill up your gas tank and it’s costing you more, when you’re going to the grocery store and your pound of bacon costs a little bit more, people notice that stuff,” she continued.
Consumer prices rose 6.2 percent year over year in October, driven largely by surging food and energy prices, according to the Labor Department’s consumer price index (CPI). Economists expect the November CPI data, set to be released Friday, to show an even larger, 6.7 percent annual increase in consumer prices last month.
The steady rise of consumer prices has strained cash-strapped households and boosted political pressure on President Biden and Democrats with less than a year until the midterm elections. Republicans have repeatedly pointed to rising costs and have blamed Biden and Democrats for overheating the economy with the American Rescue Plan, the $1.9 trillion March stimulus bill passed with only Democratic votes, even as other wealthy nations with weaker recoveries also struggle with inflation.
“It’s the fiscal house that’s driving the question on inflation. That’s the deeply concerning part,” said Rep. Patrick McHenry (N.C.), the top Republican on the House Financial Services Committee, at the Capitol on Thursday.
“Congress has put jet fuel on an economy that already had price challenges.”
While the American Rescue Plan helped boost the U.S.’s recovery, much of the spending it fueled has flooded into an overloaded goods sector. Prices for a wide range of consumer staples have risen sharply as pandemic-hindered factories, suppliers, shipping companies and retailers struggle to catch up to surging demand. The emergence of the delta variant over the summer deepened much of those supply chain disruptions and shifted more spending away from service sector industries still climbing back to pre-pandemic health.
As Biden scrambles to unsnarl supply chains, the president and White House officials have griped about inflation’s shadow on public approval of the economy and media coverage of the dynamic. But lawmakers ranging from fierce progressives to moderate stalwarts have warned against brushing off the price squeeze facing the working class.
“The question is not, ‘Is inflation a problem or not?’ We know it is,” Rep. Alexandria Ocasio-Cortez (D-N.Y.) told The Hill at the Capitol on Thursday. “The question is, ‘Are we going to be real about solving it, or are we just going to make it a talking point?’ ”
Ocasio-Cortez and many Democrats have touted Biden’s “Build Back Better” plan as a key step toward lowering costs for families, particularly for child care and prescription drugs. She said Thursday the $1.75 trillion social services and climate bill could also help bring more women into the workforce, including thousands who left amid the onset of the pandemic for care responsibilities.
“There are very specific pressure points in both our physical supply chain — issues when it comes to ports, shipping — but also labor squeeze points,” Ocasio-Cortez explained. “When we invest in those specific areas, then I believe we’ll be able to kind of loosen the bottlenecks that we have.”
While most economists say the Build Back Better plan will do little to raise prices in the near term, they’ve warned that any deflationary impact won’t occur for months, if not years. The persistence of the delta variant, the emergence of the omicron variant and the looming winter are also likely to pressure supply lines before inflation starts to ease next year, analysts warn.
“The Biden administration is working with business leaders to tackle supply-chain issues, but it’s unclear how much near-term progress can be made amid a structural truck-driver shortage and warehouses that are essentially at capacity,” wrote Oren Klachkin, lead U.S. economist at Oxford Economics, in a Monday analysis.
Klachkin said a combination of port bottlenecks, “stubborn logistics challenges” driven by overlapping international travel restrictions and a years-long shortage of truck drivers have continued to boost pressure on prices.
“The new omicron variant risks slowing the pace at which supply chain problems are resolved, and could unwind the progress achieved thus far,” he wrote.
Deeper supply chain issues, particularly as price growth spreads from cars and consumer electronics to food and energy, could pose challenges for cash-strapped households and the Democratic candidates in need of their support. While a rapid rise in house and stock prices has been a boon for wealthier Americans who can shake off higher prices, both are cold comfort for those without money in the market or ample cash to spend.
“It’s a fine message for our Republican opponents, especially with something like gas prices or food prices where people feel it in the pocketbook,” Rep. Don Beyer (D-Va.) told The Hill at the Capitol on Thursday.
“My best hope is that those pressures will have abated significantly by the late spring. I don’t think if they abate by October it will be in time.”