By Megan Cassella
Americans are likely to face higher prices on everything from gasoline to groceries well into next year — threatening to turn a simmering economic issue into a major political one.
The rapid reopening of the economy this summer led to massive price hikes for travel services, used cars and other goods that were initially dismissed as fleeting phenomena. But the inflation spike now appears to be on track to persist deep into 2022, when midterm elections will determine who controls Congress, as clogged supply chains, labor shortages and unabated consumer demand push costs even higher.
“Higher inflation is reasonably likely through at least next year,” said Jason Furman, a top economic adviser to former President Barack Obama who is close to the Biden administration. “And once you’ve had two years in a row of higher inflation, it may take on some momentum of its own.”
That prospect has heightened concern among Democrats about the potential political fallout, and the administration has scrambled to address some of the root causes even as officials argue that there’s little they can do to resolve them on their own.
The longer the issues last, the more likely they are to become politically perilous for congressional Democrats running for re-election and hoping to hold onto their slim House and Senate majorities as voters feel the squeeze of elevated prices on everyday goods and services.
Evidence that higher costs might last longer than first expected has been piling up. Data on consumer prices released Wednesday showed that the cost of goods and services rose 5.4 percent last month from a year earlier, the largest jump in 13 years. Prices increased 0.4 percent from August to September, the data showed, a higher-than-expected climb that was steeper than the month before.
The Federal Reserve Bank of New York said Monday that Americans’ short- and medium-term inflation expectations are at their highest levels since it launched the Survey of Consumer Expectations in 2013. And the International Monetary Fund noted “great uncertainty” surrounding where inflation is headed in its World Economic Outlook this week and said the risk is that it could be worse than anticipated.
“I’m pretty worried,” former Treasury Secretary Larry Summers, who has been warning of an inflation problem for months, said at an Institute of International Finance conference on Wednesday. “I think we’re looking at a very difficult situation on inflation.”
Republicans have been hammering President Joe Biden and Democratic lawmakers over the issue, and the message now appears to be taking hold: Nearly three in four voters have heard or read some or a lot about oil and gas prices hitting their highest peak since 2014, a POLITICO-Morning Consult poll this week showed.
And 63 percent of Americans said they were very concerned about rising prices for food and consumer goods, according to a Pew Research Center poll of more than 10,000 adults from late September. Another 30 percent said they were somewhat concerned. “This will be a winter of high gas prices, shortages and inflation because far left lunatics control our government,” Sen. Marco Rubio (R-Fla.) posted on Twitter Thursday.
Democrats will try to make the case that the inflation data reflects a broader economic recovery that also shows wages rising and more Americans headed back to work.
“Republicans have really drummed this up and are seizing it as the way in which they want to talk about Biden’s economic quote-unquote shortcomings — which is a hard place for them to be if the economy is going well,” said Faiz Shakir, a Democratic strategist and former presidential campaign adviser to Sen. Bernie Sanders.
Still, Shakir said, for Democrats on the campaign trail, “you’re going to confront it.”
The White House says it has been focused on easing the supply snags, including cutting red tape to make it simpler to issue commercial driver’s licenses — a move meant to help reduce the shortage of truck drivers — and providing tens of millions of coronavirus vaccines to Southeast Asia, where Covid-related factory shutdowns remain an issue.
Administration officials have also been consulting with the oil industry in an attempt to stem rising gas prices, which have been driving the headline inflation rate upward. And Biden on Wednesday announced a series of steps to try to alleviate supply chain backlogs, including keeping the Port of Los Angeles open 24/7 and marshaling FedEx, UPS and major companies to send drivers to ports during night shifts and for longer hours to transport more shipping containers each week.
“I want to be clear, this is across-the-board commitment to going to 24/7,” Biden said in remarks from the White House. “This is a big first step in speeding up the movement of materials and goods through our supply chain. But now we need the rest of the private sector chain to step up as well.“
“It’s a real economic challenge,” said one industry representative in touch with the White House on supply chain matters who requested anonymity to speak candidly. “Any administration would be very concerned about getting this sorted through.”
But it’s unclear whether those efforts will have much effect. Much of the rise in energy costs is beyond the White House’s control. And supply chain disruptions caused by shutdowns, labor shortages and severe weather events can’t be easily resolved, either.
“They’re focused on the things within their control,” said Furman, a Harvard professor. “And a lot of this inflation dynamic is not within their control.”
Voters may not see it that way. Economic downturns and high inflation rates have historically been harmful to the party in power — dooming Jimmy Carter’s presidency in 1980 — and Democrats will be forced to confront the issue on the campaign trail as long as the cost of goods remains high. And surveys signaling broad concern over inflation are also showing that Biden’s job-approval rating is now underwater. The same Pew survey from late last month found that just 17 percent of voters are very confident that Biden will make good decisions about economic policy, while 32 percent are not at all confident.
In past campaigns, inflation has been a damaging issue for incumbent candidates only once it starts dragging down economic growth, said Charles Franklin, a pollster and professor at Marquette Law School in Wisconsin. But even before that, higher prices are an issue “in the campaign rhetoric sense … and in terms of people’s pocketbooks.”
“People experience inflation pretty directly — at the grocery store, the gas pump, (and with) home heating prices going up next year,” Franklin said. “Those are real political issues, and they’re things that Republicans will certainly push as a campaign issue.”
Republicans have pinned the blame on Biden for rising prices and say his sweeping social spending and infrastructure packages will only push inflation higher.
Most economists, however, say the multitrillion-dollar bills Democrats are debating are a separate issue and would not “make a bad problem more difficult,” as Stephen Roach, a Yale economist, put it.