The Politics of Inflation

February’s Consumer Price Index (CPI) showed prices up by 0.62% in the past month. If that rate of increase kept up for the rest of the year, the annual inflation rate would be 7.4%. But the CPI won’t keep rising that fast.

Over the past several years, almost all of the annual increase in the CPI came in the first half of the year, so if this year is like past years, month-over-month inflation will come to a halt after mid-year. That would seem to be advantageous to the Biden administration in November.

The annual rate of inflation is coming down, if slowly. It was 3.4% for 2023 and has fallen to 3.2% from February 2023 to February 2024. If it keeps dropping at that rate, the Federal Reserve will hit its 2% inflation target in six months—another seeming advantage to the Biden administration’s November hopes.

However, most people are not concerned about inflation per se, but rather high prices. Whether inflation is up or down is not something most people keep track of. People are looking at how much they have to pay for stuff. So, even if the Fed’s inflation goals are met by November, prices will still be higher than they were a few years ago, and people will still associate those few years with the Biden administration.

For that reason, no matter how successful the Federal Reserve is in curbing inflation, inflation will weigh as a negative on the Biden administration’s reelection prospects. People will remember that the Biden administration claimed that inflation was a transitory phenomenon. However, prices are still higher than they were a few years ago.

Is this fair to the Biden administration? Inflation has subsided more rapidly than I expected (but less rapidly than Biden and Jerome Powell said it would). I’m willing to call that a success and credit Powell and the Federal Reserve.

Most voters will not see it that way. Prices are still high, and they will not be coming down. People care about that, and this issue will matter in November.

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
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