President Joe Biden on Thursday touted wage growth and forecasts for tapering inflation even after a new report showed that prices are still rising at their fastest clip in 40 years.
“While today’s report is elevated, forecasters continue to project inflation easing substantially by the end of 2022,” Biden said in a press release. “And fortunately we saw positive real wage growth last month, and moderation in auto prices, which have made up about a quarter of headline inflation over the last year.”
“We will continue to fight for costs in areas that have held back families and working people for decades, from prescription drugs to child care and elder care to their energy costs,” he added.
The president’s remarks came about two hours after the Labor Department reported that prices facing U.S. consumers rose 7.5% in the 12 months through January, the hottest annualized pace since 1982. Excluding volatile gas and grocery costs, the CPI increased 6%, compared with the estimate of 5.9%. Core inflation rose at its fastest level since August 1982.
Inflation has over the past several months evolved into one of the administration’s chief economic problems as rising prices at the gas pump and at the grocery store chip away at Americans’ wallets. Without proportional wage increases, inflation erodes consumers’ purchasing power and leaves households with lower real incomes.
The White House has limited powers at its disposal to curb price increases, including tapping the strategic petroleum reserve, shoring up U.S. supply chains and encouraging workers to return to work as soon as possible.
While investments in American infrastructure supported by the Biden administration may work to lower prices in the long term, the White House doesn’t have many options to check prices in the near term. Instead, Biden and Treasury Secretary Janet Yellen have in recent weeks said they agree with the Federal Reserve’s likely move to tighten monetary policy and raise interest rates to keep inflation at bay.
The Fed is empowered by Congress to adjust interest rates to maximize employment and stabilize prices. If the central bank views the economy as too hot, it can raise borrowing costs across the economy to curb spending.
Market forecasters are virtually certain the Fed will hike rates at its March meeting and continue to do so throughout 2022.
“The Federal Reserve provided extraordinary support during the crisis for the previous year and a half,” Biden said on Jan. 19. “Given the strength of our economy and pace of recent price increases, it’s appropriate — as Fed Chairman Powell has indicated — to recalibrate the support that is now necessary.”
Yellen echoed her boss’s thoughts a day later.
“I expect inflation throughout much of the year – 12-month changes – to remain above 2%,” she said at the time. “But if we’re successful in controlling the pandemic, I expect inflation to diminish over the course of the year and hopefully revert to normal levels by the end of the year around 2%.”