President Joe Biden said it himself this week: “Prices are still too high.” Unfortunately for Biden, today’s inflation report is expected to show some emerging relief but not enough to make one of his toughest political problems go away. The fight over high prices is entering a new phase as the 2024 campaign ramps up. The strength of the U.S. economy under Biden’s watch is indisputable, with more and more economists scaling back their forecasts for a recession this year. Republicans are focusing economic critiques on the persistence of higher prices, even if reports like today’s Consumer Price Index release show that cost increases are decelerating. To put things in perspective, CPI is up by 17.8 percent since January 2021, while average weekly earnings are up by 12.8 percent. “Prices are not going up as quickly but wages still haven’t caught up to the inflation we’ve seen over the last couple of years,” said Heritage Foundation public finance economist EJ Antoni. “That’s a big reason why people are so down on this economy and will continue to be so until that changes.” What economists expect According to a Bloomberg survey, annual CPI growth is expected to have fallen to 2.9 percent in January from 3.4 percent in December. Bloomberg notes it would be the first reading below 3 percent since March 2021. “You’re going to see falling energy and goods prices continue to restrain growth in inflation,” RSM US principal and chief economist Joseph Brusuelas said. Why it matters A continuing decline in inflation would be good news for consumers and could be good for Biden’s political prospects, though polls indicate he struggles to get credit for positive economic news. It would also be more of what the Federal Reserve wants to see before cutting interest rates. An initial cut appears to be off the table for March but it’s a live question for May. The CPI report may still provide fodder for Republicans who want to argue that Democrats are out of touch when it comes to the pain of higher prices. The White House is trying to emphasize that Biden’s on the case. Treasury Secretary Janet Yellen will make swing state appearances in Pennsylvania and Michigan this week. The president released a video on Super Bowl Sunday bashing companies for “shrinkflation” and not cutting prices. Biden revisited the attack in a speech Monday where he warned against “greedflation.” “I’m calling on corporations to pass their savings on to consumers, for God sake,” he said. Broad-based deflation — a reversal of prices — probably isn’t happening in the run-up to election day, barring some kind of economic cataclysm. Disinflation is expected to continue but may not be rapid. A majority of economists surveyed by the National Association for Business Economics expect that CPI will remain elevated, with about two-thirds believing it’s likely or very likely to stay above 2.5 percent through the end of the year. A New York Fed consumer survey released Monday showed inflation expectations mostly stable, with the median for this year at around 3 percent. The White House flagged another New York Fed finding that showed perceptions about household finances improved last month, with more respondents saying they were better off than a year ago and fewer saying they were worse off. Brusuelas argues that gasoline prices will be key to any shift in how consumers perceive the inflation situation. “When you talk to your median consumer and you ask about inflation, what they’re really talking about is gasoline and groceries,” he said. “If we continue to see moderation in energy and gasoline costs, that’s a net positive for the incumbent.” What’s next The “$64,000 question,” according to Unlimited Funds co-founder and CEO Bob Elliott, is whether inflation picks up again. “The disinflationary pressures that have been in place for bringing CPI down may not persist forever,” he said. “Where inflation will settle is going to be more a function of those more structural inflationary dynamics, like housing costs and overall services price inflation, which is connected to wages. Those things have not come down anywhere near as much as goods prices have come down.” Happy Tuesday — What’s your take on this week’s economic news? Send thoughts to zwarmbrodt@politico.com.
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