White House Braces for ‘Extraordinarily Elevated’ Inflation Report

By Yuval Rosenberg

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White House Braces for Another ‘Extraordinarily Elevated’ Inflation Report

The inflation rate hit a multi-decade high of 7.9% in February and now the Biden administration is warning that the March numbers could be even worse.

White House Press Secretary Jen Psaki said Monday that tomorrow’s Labor Department report on the consumer price index is expected to show another round of price increases in the U.S. economy, driven in part by the Russian invasion of Ukraine. “We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike,” Psaki told reporters.

At the same time, the White House expects the measure of core inflation, which excludes volatile categories such as oil and grains, to be lower. “We expect a large difference between core and headline inflation,” Psaki continued, “reflecting the global disruptions in energy and food markets.”

All in the details: Axios’s Neil Irwin says that beyond what could be a “nasty” headline number, the report will give an indication of whether the inflationary pressures in the economy are starting to ease. “The real question for the outlook lies in what is going on with underlying inflation trends — those tied to the economy's internal dynamics around wages and business pricing power, rather than geopolitical events,” Irwin writes.

Some analysts expect to see reduced pressure on the prices of goods, which have been driving inflation in recent months. Used car prices, which have played a powerful role in driving overall inflation higher, saw a drop at the end of March. But prices for services are rising and could take over as the main driver of sustained inflation.

Expectations rising: The consumer outlook for inflation rose to a new high in March, according to the Federal Reserve Bank of New York. Consumers expect to see inflation of 6.6% on an annual basis, up six-tenths of a point from the month before.

“The increase in short-term expectations was broad-based across age, education, and income groups,” says Bloomberg’s Alexandre Tanzi. “Inflation also pushed the one-year outlook for household spending and rent growth to new highs in data going back to 2013.”

Economists surveyed by Bloomberg see inflation moving even higher, with an average expectation of 8.4% for March.

Recession risk rising, too: The stubborn persistence of inflation is pushing the Federal Reserve to move more aggressively, and the central bank has started raising rates and will start draining liquidity from the economy in the coming weeks. Tighter monetary conditions are reducing growth estimates, and economists surveyed by The Wall Street Journal raised their odds of a recession occurring in the next year to 28%, up sharply from 13% a year ago.

“Risk of a recession is rising due to the series of supply shocks cascading throughout the economy as the Fed lifts rates to address inflation,” Joe Brusuelas, chief economist at RSM, told the Journal.

Some economists are much more pessimistic. Amy Crews Cutts of AC Cutts & Associates puts the odds of a recession at 70%. “To be seen not fighting it is politically unwinnable,” she told the Journal. “But the only policy response the Fed has is to tighten. Fed actions to curb inflation will lead to a recession sooner rather than later.”

A fiscal factor: High inflation is already playing a significant role in congressional debate over the defense budget, as The Hill’s Jordan Williams writes. The Biden administration has asked for a Pentagon budget of $773 billion for fiscal year 2023, a 4% increase over this year’s level. Republicans have criticized the request for failing to keep up with inflation, warning that the military’s purchasing power will be eroded — and have called for an increase of 5% above inflation. But some liberals have argued that some defense contractors are using inflation as a cover to push their own price hikes.

“I think that the $773 billion for the Pentagon is already way too high, but the notion that we need to increase the total by $100 or $400 billion every year just invites defense contractors to pick taxpayers’ pockets,” Sen. Elizabeth Warren (D-MA) said last week at a hearing of the Senate Committee on Armed Services. “The American people are willing to pay to defend this country, but they're not going to sit still for being gouged by hugely profitable defense companies.”

New Coronavirus Czar: $10 Billion Is Just a ‘Down Payment’ for Pandemic Funding

Dr. Ashish Jha took over Monday as the White House coronavirus response coordinator, replacing Jeff Zients. Jha, appointed by President Biden last month, started his tenure by making the rounds of morning television news shows, saying he’s “not overly concerned” about the BA.2 omicron subvariant and the increase in cases some regions are now seeing. Jha said that infection rates are still low relative to where they have been and hospitalizations — “the metric we care about most” — are at their lowest level since the start of the pandemic.

“The pandemic isn’t over. We’re still going to see cases of this virus spreading, and we have to continue to be vigilant, we have to continue to be careful,” Jha said on ABC’s “Good Morning America.” He added that the vaccines and boosters are working well against the BA.2 subvariant and said it is “absolutely essential” that every adult who is more than five months from vaccination get their booster shot, and especially important for older Americans. “That’s how we’re going to save lives, that’s how we’re going to prevent hospitalizations and deaths — is making sure that older, more vulnerable people absolutely get their booster,” he said.

A down payment on pandemic funding needs? Jha told CBS that he’s confident Congress will “step up and do its part” by delivering additional pandemic funding — money that the White House has said is urgently needed to continue providing vaccines, treatments and testing. Congress has so far failed to approve that funding, as a bipartisan bill to provide $10 billion got delayed in the Senate last week after Republicans demanded a vote on an amendment to extend a pandemic-era border policy that the Biden administration has said it will end next month.

Jha called the $10 billion a down payment on needed funding, noting that the administration had previously asked for $22.5 billion or more. “We need it for vaccines, we need to make sure that we have plenty of testing available, we need to make sure that we have plenty of treatments available,” Jha said. “That’s all going to be essential, and we’re going to need the resources to make sure that we have that for the American people.”

Jha also said that the Biden administration may extend the federal mask mandate for public transportation, which is currently set to expire on April 18. “This is a CDC decision and I think it is absolutely on the table,” he told NBC’s “Today Show.”

Why it matters: Jha’s appointment to the White House job was questioned by some skeptics who pointed out that he has never had a leadership role in government and doesn’t have experience managing the federal bureaucracy or handling the politics and public scrutiny that inevitably come with such a job. While serving as the White House Covid czar, he’s on leave from his position as dean of the Brown University School of Public Health.

“Now, the amiable academic faces a real-world test of his pithy TV advice: If the government fails to secure enough vaccines and tests, forcing Americans into long waits, it’s his problem. If a new variant causes a sixth pandemic wave, or besieged hospitals cannot handle an avalanche of cases, those are his problems, too, and ones that can’t be explained away in a cable-news segment,” The Washington Post’s Dan Diamond wrote in a profile published this weekend.

Jha’s defenders say he’s the right person for the job because he brings health and policy expertise along with messaging skills. “Three administration officials working on the coronavirus response agreed Jha’s background as a public health expert and physician would allow him to foresee some challenges his predecessor missed,” Diamond reported.

The bottom line: The real test for Jha won’t be on morning news shows.

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