Biden Aims to Leverage 3% Inflation Rate as Political Advantage

The political landscape surrounding inflation underwent a significant shift with the release of June’s consumer price index report, revealing the slowest inflation growth since the beginning of President Biden’s term. This development has potentially profound implications for the political discourse, particularly for the Republican party, which has consistently criticized Biden’s economic policies, attributing the four-decade high inflation to the $1.9 trillion pandemic relief package and the administration’s focus on electric vehicles. The June report, however, indicates a substantial easing of inflation without the anticipated job losses predicted by some economists and Republican leaders, challenging the narrative previously employed by the GOP.

The current annual inflation rate of 3% marks a dramatic decrease from the 9.1% recorded in June 2022. The primary driver of this remaining inflation is attributed to rising housing costs, specifically rent. This nuance complicates the political narrative around inflation, as the majority of voters, according to AP VoteCast, are homeowners and therefore less directly affected by rental price increases. This ownership dynamic cuts across party lines, with 83% of Republicans and 73% of Democrats owning their homes.

The Biden administration has quickly capitalized on this positive inflation report, touting it as evidence of the effectiveness of their economic agenda, dubbed “Bidenomics.” They highlight the simultaneous decline in inflation and the sustained low unemployment rate of 3.6% as proof of their successful approach. This counters the expectations of job losses resulting from the Federal Reserve’s efforts to combat inflation through interest rate hikes. The administration emphasizes the significant drop in inflation while maintaining a strong labor market as a key achievement of their policies.

Despite the positive trend in inflation data, Republicans continue to criticize Biden’s economic policies. While acknowledging the recent slowdown, they emphasize the cumulative price increases throughout Biden’s presidency rather than focusing on the monthly or annual figures typically used by economists. They highlight substantial price hikes in sectors like airfare (39%), furniture (18.8%), and gasoline (52%) since Biden took office, aiming to maintain the narrative of economic hardship under the current administration. This strategic shift in focus from current inflation rates to cumulative increases reflects an attempt to retain the inflation issue as a political weapon.

The White House, on the other hand, encourages voters to concentrate on the downward trend of inflation. They particularly emphasize the increase in the number of gallons of gasoline an average worker can purchase with an hour’s labor, a metric previously used by Republicans to criticize Biden during last year’s record-high gas prices. This measure has improved significantly, rising from 5.5 gallons a year ago to over 8 gallons currently, reflecting the decrease in gas prices and wage growth. This shift in the narrative surrounding gas prices, a potent political symbol, represents a significant development in the economic debate.

President Biden has consistently maintained that his $1.9 trillion COVID-19 relief package did not contribute to the surge in inflation, attributing the price hikes to disrupted supply chains and the war in Ukraine. While this argument did not resonate widely with voters during the 2022 midterm elections, the recent decline in inflation allows the administration to claim vindication for its policies. They attribute the positive trend to the Fed’s independence in managing interest rates, the easing of supply chain bottlenecks, and initiatives like the Inflation Reduction Act, which aims to lower prescription drug costs and promote investments in clean energy and manufacturing.

Furthermore, the administration expresses optimism about future inflation trends, citing the expectation that housing costs, the primary driver of current inflation, will moderate in the coming months. This projection is based on forecasts suggesting a slowdown in rental price increases. With the 2024 presidential election approaching, Biden is actively promoting his economic achievements, emphasizing the connection between his policies and new construction projects and corporate investments. The administration is attempting to reshape the narrative around the economy, which has been a perceived weakness for Biden, with approval ratings on economic issues remaining relatively low. The evolving composition of inflation drivers, particularly the shift towards housing costs, could significantly influence voter perceptions of the economy and its political implications.

While the decline in inflation offers the Biden administration a reprieve from consistent criticism, it does not guarantee sustained economic stability or preclude a potential recession. The Federal Reserve’s continued focus on raising and maintaining high interest rates until inflation reaches its 2% target introduces uncertainty into the economic outlook. Experts hold differing views on the likelihood of a recession. Some, like Michael Strain of the American Enterprise Institute, express skepticism about the feasibility of achieving the Fed’s inflation target without triggering a mild recession and increased unemployment. Others, like Skanda Amarnath of Employ America, suggest that the recession risk has diminished and that lowering inflation has not resulted in widespread job losses as anticipated. However, he acknowledges the inherent unpredictability of the economic landscape in response to the Fed’s aggressive interest rate hikes. The ongoing debate about the future trajectory of the economy remains complex and contested.