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More Bad News for Biden: Inflation Hits a New 40-Year High
Consumer prices rose at an annual rate of 8.6% in May, the Bureau of Labor Statistics announced Friday, as inflation hit the fastest pace in 40 years. On a monthly basis, prices rose by 1%, more than triple the 0.3% month-over-month rate recorded in April.
Price increases were broad-based, with energy, food and housing leading the way. Energy costs rose 3.9% in May — and 34.6% over the last 12 months — as gasoline hit record prices in the U.S. The cost of groceries jumped 11.9% on an annual basis, the biggest increase since 1979. And the cost of shelter picked up speed in May as well, rising at an annual rate of 5.5%, the biggest jump in over 30 years.
Core inflation — a measure that leaves out volatile food and fuel prices and is closely watched by the Federal Reserve — increased at a 6.0% annual rate, higher than in April and slightly above expectations.
No silver lining: The May inflation report dashes hopes that inflation has peaked, and increases the odds that the Fed will have to move even more aggressively to get inflation under control, perhaps for months to come and at the risk of causing a recession.
“I keep looking at the line item breakdown of the CPI report searching for silver linings and I just don't see any,” said Neil Irwin of The New York Times. “This report is a disaster if you're a Fed or Biden administration official hoping this inflation will go away without a serious downturn.”
The breadth of the price hikes is particularly concerning. “Inflation is hitting not only the volatile food and energy categories, which themselves look to persist at high levels, especially food, but has moved deeply into services and shelter costs, while remaining high in goods categories we thought were cooling off,” Robert Frick of Navy Federal Credit Union said in a note.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, tried to find some ray of hope. “Airline fares will stop rising [very] soon, given 45% drop in jet fuel prices from peak, and US vehicle output back to pre-Covid levels will ease pressure on vehicle prices.” And economist David Rosenberg argued that the inflation numbers look much better if “you strip out of the CPI all the items that are linked to energy (air fares, moving/freight, rental cars, delivery services, new and used vehicles),” which produces an adjusted inflation rate closer to 4%. But as others noted, the economy people actually live in is heavily dependent on oil, the cost of which shows no signs of easing as the war in Ukraine rages, China reopens its economy and the demand for travel in the U.S. soars.
Consumers sinking low: A closely watched gauge of consumer sentiment from the University of Michigan has now fallen to a record low, sinking to 50.2 in June, down from 58.4 in May. It’s the lowest reading going back to 1952, and worse than the lows seen during the 2008 financial crisis.
"Consumer sentiment declined by 14% from May, continuing a downward trend over the last year and reaching its lowest recorded value, comparable to the trough reached in the middle of the 1980 recession," Joanne Hsu of the University of Michigan's Surveys of Consumers said in a statement.
The price of gasoline — always a sensitive issue in a country built on highways and suburban sprawl — seems to be playing an important role in the souring mood. “Overall, gas prices weighed heavily on consumers, which was no surprise given the 65 cent increase in national gas prices from last month,” Hsu said. “Half of all consumers spontaneously mentioned gas during their interviews, compared with 30% in May and only 13% a year ago. Consumers expect gas prices to continue to rise a median of 25 cents over the next year, more than double the May reading and the second highest since 2015.”
White House responds: Clearly threatened politically by the depth and persistence of the inflationary surge, President Joe Biden sought to reassure Americans Friday that the White House is focused on the issue, while also making it clear that he thinks others are to largely blame for the problem.
“Today’s report underscores why I have made fighting inflation my top economic priority,” Biden said in a statement. “While it is good to see critical ‘core’ inflation moderating, it is not coming down as sharply and as quickly as we must see. Putin’s Price Hike hit hard in May here and around the world.”
During a visit to Los Angeles, Biden slammed oil companies for earning record profits as fuel prices soar. “One thing I want to say about the oil companies: They have 9,000 permits to drill. They’re not drilling,” he said. “Why aren’t they drilling? Cause they make more money not producing more oil — the price goes up.”
Asked if he planned to target oil company profits, Biden singled out one company in particular for criticism: “Exxon made more money than God this year,” he said. “Exxon, start investing. Start paying your taxes.”
Summers warns: With the Fed facing the difficult task of cooling the economy without causing a recession, former Treasury Secretary Lawrence Summers chided the central bank for getting it wrong on inflation.
“It’s pretty clear that peak-inflation theory, like ‘transitory’ theory is kind of wrong,” Summers told Bloomberg Television. “The Fed’s forecasts from March, saying that inflation would be coming down to the 2s by the end of the year was, frankly, delusional when issued, and looks even more ridiculous today.”
Summers said the latest inflation numbers point to bigger interest rate hikes, lasting for a longer time — an increasingly popular view that helped send stocks sharply lower Friday as traders adjusted their expectations. “The debate has been between 25 and 50 basis point moves a couple months from now,” he said. “I think a more fruitful deliberation would be between 50 and 75 basis points.”
Separately, analysts at Barclays upped their forecast for the Fed’s rate hike in June: “We are changing our forecast to call for a 75bp hike on June 15.
Biden Scraps Trump's Planned Air Force One Paint Job
The Biden administration has reportedly decided to scrap former President Donald Trump’s plan to use a red, white and blue paint scheme for two new Air Force One jets after an analysis found that the design would raise the cost and delay delivery of the planes.
“The Trump paint scheme is not being considered because it could drive additional engineering, time and cost,” an unnamed administration official told Politico.
Politico’s Lara Seligman and Lee Hudson reported earlier this week that Trump’s proposed makeover, which would have painted the plane’s underbelly and engines in dark blue, “could contribute to excessive temperatures on the plane, a problem that Boeing would likely have to pay out-of-pocket to fix.”
The White House reportedly is likely to keep the plane’s Kennedy-era light blue and white design. The new planes aren’t expected to be ready until 2026, Politico says. The program has been delayed by supply chain issues, Boeing’s trouble finding workers with appropriate security clearances and a dispute between the airplane maker and a subcontractor.
Boeing was awarded a $3.9 billion contract in 2018 to deliver two new presidential 747 jets to replace the existing planes. Boeing CEO David Calhoun told Wall Street analysts earlier this year that the deal struck by his predecessor was a mistake. "Air Force One, I'm just going to call a very unique moment, a very unique negotiation. A very unique set of risks that Boeing probably shouldn't have taken," he said. "But we are where we are."
Income-Support Programs Could Save Thousands of Lives a Year: Study
A variety of potential income-support policies could save thousands of American lives each, according to a new study published in the journal JAMA Health Forum.
Researchers at the University of Michigan School of Public Health and the University of California system modeled out the potential effects of four different income-support policies: a universal basic income of $12,000 a year; a negative income tax that guarantees an income of 133% of the federal poverty level; a modified version of the LIFT Act, proposed by Vice President Kamala Harris while she was in the Senate, that would provide $6,000 to individuals with annual household income below $100,000; and a more targeted income guarantee of at least 100% of the federal poverty level for one person.
They found that each of the four hypothetical policies could avert thousands of deaths, with universal basic income saving between 42,000 and 104,000 lives of working-age adults a year, followed by the negative income tax (19,000 to 67,000 lives). The modified LIFT Act would avert 17,000 to 52,000 deaths, they estimate, while the most targeted poverty-fighting approach would prevent 12,000 to 32,000 deaths among the lowest-income, working-age adults.
“Despite decades of research that has demonstrated that income is an important determinant of health, discourse around income support policies has disproportionately emphasized their economic benefits and costs, with little to no focus on the health benefits that these interventions might provide,” the researchers conclude.
- An ‘Ugly’ Inflation Report Upended Hopes That Price Gains Would Ease – New York Times
- Five Charts Explaining Why Inflation Is at a 40-Year High – Washington Post
- Food Prices Soar to 40-Year Highs, Pinching Shoppers at Groceries and Restaurants – NBC News
- Biden Calls for Ocean Shipping Overhaul as Part of Inflation Response – Roll Call
- Biden Team Points at the Fed as Inflation News Worsens – Bloomberg
- Fed Likely to Signal Half-Point Rate Rises Through September After Inflation Report – Wall Street Journal
- Larry Summers Says Fed Forecasts Look Ridiculous, Warns on Rate Delay – Bloomberg
- Consumer Sentiment Plunges to Record Low in June, According to University of Michigan Survey – MarketWatch
- ‘Trump Was at the Center’: Jan. 6 Hearing Lays Out Case in Vivid Detail – New York Times
- Two Air Force Ones, One Big Mess for Boeing – CNN Business
- Eye-Catching Cancer Drug Trial Results Have Researchers Asking: What’s Next? – Washington Post
- Blood Tests That Detect Cancers Create Risks for Those Who Use Them – New York Times
- Lindsey Graham and Bernie Sanders Kick off a New Debate Series. It’ll Be ‘Fun’ – Roll Call
Views and Analysis
- The Case for Economic Optimism Is Over – Kevin T. Dugan, New York
- Inflation Finally Drives a Stake Through ‘Transitory’ – Jonathan Levin, Bloomberg
- Rick Scott Backtracks, but His Plan Is Still Ultra-MAGA Madness – Ed Kilgore, New York
- 5 Takeaways From the First Jan. 6 Hearing – Jonathan Weisman, New York Times
- 6 Takeaways From the Jan. 6 Committee’s First Prime-Time Hearing – Amber Phillips, Washington Post
- Wonking Out: Why Monetary Policy Has Gotten So Hard – Paul Krugman, New York Times