Soaring inflation has become a political liability for President Joe Biden, who has shifted his public message to acknowledging the problem and commiserating with Americans over higher prices.
On Wednesday, a government report showed a key measure of inflation climbed to a level not seen since June 1982. Consumer price inflation rose by 6.8% without seasonal adjustments over the 12 months that ended in November, the Bureau of Labor Statistics said.
Stripping out food and energy, the prices of which tend to be more volatile, inflation rose 4.9% over the same period — the highest level since June 1991.
Even as his administration scrambles to pull all available levers to bring prices down, there remains little that Biden – or any president – can do unilaterally to tame inflation in the short term. Yet there are policies Biden could advocate for that may eventually ease inflationary pressures.
Republicans are eager to tie the problem to Biden’s major government spending plans, which the White House insists will actually help ease inflationary concerns over time.
But without many tools to directly tackle higher prices, the administration is looking to address some of the causes for inflation, like supply chain bottlenecks and shortages of goods. Even administration officials acknowledge it will take time for the effects of that strategy to be felt by consumers.
What’s the problem?
The coronavirus pandemic warped global supply and demand patterns, causing a mismatch that has driven prices higher. Bringing an end to the pandemic will help return those patterns to normal. The steps Biden is taking now could have a limited effect but won’t be felt for some time.
Unclog the supply chain
Disruptions in the global supply chain due to labor shortages, Covid-19 restrictions and an increased demand for goods (as opposed to services) have caused the prices of some products to increase.
There are some signs that supply chain bottlenecks are improving, but the situation hasn’t returned to pre-pandemic normal.
The most visible steps Biden has taken so far to bring those prices down are to try unclogging bottlenecks at US ports, where container ships are waiting to unload. He announced last year that two of the largest US ports – Los Angeles and Long Beach – would operate 24 hours a day. And Biden announced in Baltimore in November new funding for expanding port capacity across the country.
Once goods get offloaded, however, there is a shortage of truck drivers to transport them around the country. The administration is weighing steps like lowering the minimum age for truck drivers or trying to increase their pay to attract more drivers. And officials have not ruled out using the National Guard to step in and begin trucking goods.
“Focusing on ports and supply chains is the right thing to do,” Jason Furman, a top economic adviser to former President Barack Obama, told CNN. “I don’t know how much it all adds up to. I suspect not a lot, but it’s worth trying.”
Administration officials acknowledge that, even with these steps, any resulting decrease in prices will take time to materialize.
“There is no quick fix. If there were a light switch, we would do that,” Commerce Secretary Gina Raimondo said on CNN. “We all have to be just a little bit patient because we are seeing that the action we are taking is working. We just have to stick with it, you know, long enough to solve the problem.”
Address the worker shortage via immigration
One of the driving forces behind inflation is the shortage of workers. The United States has a near-record number of job openings, and a staggering number of Americans are quitting their jobs.
And yet immigration has fallen sharply in recent years amid the pandemic and tougher immigration policies during the Trump administration.
Comprehensive immigration reform, which Biden could forcefully advocate for, would help ease the shortage of workers and thus the inflationary pressures, economists say.
“We have a lot of job openings. This is not going to threaten people here in America. In fact, it would help them,” said Furman, who is now a professor at Harvard University.
Address the spike in energy prices
As the global economy rebounds from the pandemic, the price of crude oil skyrocketed – contributing to inflation. High gas prices are one of the most frustrating phenomena for any White House because they affect almost every American but they are mostly immune from presidential action.
The White House announced in November the US would join India, Japan and South Korea in the first coordinated emergency oil release in a decade. The Department of Energy said it would release 50 million barrels of oil from the Strategic Petroleum Reserve, the stockpile of 600 million barrels of crude oil stored in underground salt caverns in Louisiana and Texas. While gas prices have dipped somewhat, that relief has leveled off – and the price of oil is starting to rise again.
Previously, Biden had blamed OPEC for high gas prices and called on the group of oil-producing nations to increase supply.
A group of Democratic senators also asked Biden to ban oil exports to increase domestic supply. But that has the potential to anger both US producers and foreign allies. And some industry experts argue it would backfire because US gasoline is priced off Brent crude, the global benchmark. Eliminating US barrels would only drive Brent, and thus gas prices, higher.
Engage the private sector
Without many concrete policy levers to bring prices down, Biden has sought to use his presidential pulpit to engage industry leaders on the issue. He has spoken frequently with the CEOs of four major retailers and shippers – Walmart, UPS, FedEx and Target – about supply chain disruptions, and heard about their companies’ efforts to speed up deliveries.
Pass his agenda
In Biden’s view – and the view of some leading economists – passing the second of the two sweeping spending bills that comprise much of his domestic agenda would help bring down inflation.
“Build Back Better is critical to reining in the cost of living, particularly for lower and middle-income families,” said Mark Zandi, chief economist at Moody’s Analytics.
Biden insists the bipartisan infrastructure bill, which he signed in November, will eventually ease backlogs at ports and improve the movement of goods, all while adding good-paying jobs. But those effects could potentially take years. The White House has been vague on when new infrastructure projects will begin after Biden signs the bill.
Measures in the second social spending plan, like childcare subsidies and lowering prescription drug prices, would ease some financial burdens. But that bill appears stalled for now after Sen. Joe Manchin, the centrist West Virginia Democrat, said he couldn’t support it.
Among Manchin’s concerns are the potential for the package to aggravate inflation.
One move Biden could make to help relieve the stress the pandemic-related supply chain crisis is having on US companies: Lift tariffs imposed by former President Donald Trump. Trump put tariffs on roughly $350 billion of Chinese-made goods – and despite the change in administrations, those duties remain in place.
American importers have paid more than $106 billion to cover the cost of those levies to date, and many of them are now facing skyrocketing shipping costs. While the Biden administration has been conducting a comprehensive review of the US-China trade policy, it has said little about restarting trade talks or lifting punitive duties.
When he was in Europe last year, Biden did announce he was easing tariffs on European steel and aluminum, which officials said would lower costs on cars and other consumer goods and help speed up supply chains.
“Why don’t we try free trade? Get rid of tariffs. That would not only reduce prices but lubricate international trade,” said David Kelly, chief global strategist at JPMorgan Asset Management.
Increasing competition, fighting price fixing
The price of meat has caused some of the biggest sticker shock in recent months. The Biden administration has sought to rein in prices by adopting a tougher stance on price fixing – both on food and in the energy sector where gas prices have skyrocketed – and to encourage more competition among processors.
The White House announced this month it would allocate $1 billion in funding from the American Rescue Plan to independent meat and poultry producers as part of an effort to boost competition in the meat-processing industry and lower prices for consumers.
And the President signed an executive order in September directing rule-making at the Agriculture Department to boost competition and improve conditions for smaller farmers. The White House has tasked the Federal Trade Commission to investigate potential price fixing in the energy sector.
The White House has said consolidation in the meat sector is part of what has driven up prices. Some economists say more aggressively pushing antitrust laws could help ease inflation concerns.
“One of the big puzzles today is that corporate profits are at record highs and yet the corporations are passing on all these price increases to consumers,” said Robert Reich, who was Labor Secretary under former President Bill Clinton.
“If they were really in a competitive market, if we were not dealing with monopolies or what we call oligopolies, these companies would not so easily just simply pass these prices on to consumers. They’d be worried about their competitors. But they’re not and I think antitrust enforcement has got to go after these sources of huge market power, this corporate market power in the United States right now.”
Push domestic production
A global shortage of semiconductors – the computer chips used in electronics and cars – has prompted an increase in prices of those products, and a reckoning at how much the US depends on China for the technology. The chip shortage is hurting American consumers, with new vehicle prices climbing in October by the most since 1975.
The Biden administration is seeking to invest in domestic production of semiconductors but is still waiting on Congress to act. The administration seeks to spend $52 billion on domestic semiconductor research and production in the bipartisan US Innovation and Competition Act, which has passed the Senate but still awaits action in the House.
Of course, the additional supply of computer chips from these investments, if they get through Congress, would take considerable time for consumers feel. It takes years to build and fully scale up new semiconductor factories.
Appoint a tough Fed chief
Late last year, Biden nominated Federal Reserve chairman Jerome Powell to another four-year term to run the Fed – a signal he wants continuity as the economy rebounds from the pandemic.
In his confirmation hears in January, Powell pledged not to allow inflation to become ingrained in the American economy.
“We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing and transportation,” Powell said in his testimony submitted to Congress.
It’s important to emphasize that inflation falls under the purview of the Federal Reserve, not the White House.
The Fed is charged with maintaining price stability and the recent period of elevated inflation is anything but stable. Nonetheless, the Fed continues to stimulate the economy, keeping interest rates at rock-bottom levels and only very recently moving to slow its bond buying program.
“We put all of this on the President. We put him on a pedestal and pretend he has this power that he doesn’t have,” said JPMorgan’s Kelly. “This is the Federal Reserve’s job.”
As President, Biden does have power to advocate for sound policies that could address inflation and to convene industry leaders to tackle the underlying issues.
“The awkward fact is inflation is the job of the Fed,” said Furman. “Biden should be focused on other things. That’s not great political advice because people are upset about inflation, and they want the president to solve their problems. But the truth is, it isn’t his problem to solve.”
End the pandemic
Ultimately, what prompted high inflation is what will end it: The Covid-19 pandemic. When demand for services returns, workers return to the jobs market, and production of goods ramps back up, some of the factors driving up prices will ease.
“I know it seems weird, but we’ve got to get control of the spread of the virus so that people can go back to spending their money on services and there will be less emphasis in demand for physical goods and cars and computers and all of the stuff that are experiencing the supply shortages,” said Austan Goolsbee, chairman of the Council of Economic Advisers under former President Barack Obama.
The fallout from the Omicron variant, which further scrambled supply chains and labor markets, underscores the role the health crisis continues to have on prices.
“You’re not going to get inflation down,” said Zandi, “unless you quell the pandemic.”
This story has been updated with additional developments and reporting.