WASHINGTON: LBJ tried to respond. Richard Nixon issued a presidential order. The Ford administration printed buttons prompting Americans to alert them to inflation now.
Over the years, US presidents have tried, and mostly failed, in their efforts to suppress the economic and political threat of consumer inflation.
Now, President Joe Biden is giving it a shot.
Faced with a spike in gasoline and other consumer prices that have hit US homes, Biden on Tuesday ordered the release of 50 million barrels of oil from the US Strategic Petroleum Reserve. The move, carried out in coordination with several other major countries, is aimed at controlling energy costs. Oil markets, anticipating the move, were not impressed by the details: oil prices actually rose on the news.
It was just the latest move that Biden took to show he is doing everything he can to combat inflation, especially as gasoline and food prices add to the growing burden on American households. On Monday, he announced he would reappoint Jerome Powell as chairman of the Federal Reserve, a move meant to reassure financial markets that Washington is serious about controlling consumer prices. Last month, he announced plans to operate 24 hours a day, seven days a week, to reduce supply backlogs at the Port of Los Angeles.
Yet any action by the president is seen as unlikely to make a meaningful dent in price hikes anytime soon.
“I don’t think the president has many levers to bring inflation down anytime soon,” said Mark Zandi, chief economist at Moody’s Analytics. The work he is doing is positive, and there is no shortage of them… but they are on the margins. They’re not going to move the dial much.
Inflation is always a tough enemy, made even more complicated by the unusual recovery from the pandemic slowdown with shortages of supplies and workers and shipping bottlenecks that have forced prices.
What’s happening to consumer prices?
The government’s consumer price index skyrocketed 6.2% in the 12 months ending October, the sharpest jump since 1990.
After nearly four decades of more or less stable prices, CPI news represents a once-in-a-generation increase in inflation, said Sarah Binder, a political scientist at George Washington University who studies the Fed. The problem is very serious because it is something that voters notice. It’s hard to avoid the impact of increased inflation on your daily life, whether it’s buying milk or buying gas.
According to AAA, the average price of regular gasoline has increased from $2.11 a year ago to $3.40 a gallon.
Adding to the pain and increasing pressure on Biden, inflation is trailing Americans’ incomes. Adjusted for price increases, the average hourly wage was actually 1.2% lower last month than a year ago.
Inflation is painful, and it’s always political, said Diane Swonk, chief economist at accounting and consulting firm Grant Thornton.
What’s Behind the Price Spike?
This is partly the result of great news. The world economy, and the US in particular, returned with unprecedented speed and strength from the brief but sharp recession of previous years. It was the result of super-low interest rates, massive government spending and, ultimately, the widespread rollout of vaccines that allowed the economy to reopen.
The swiftness of the rebound stunned businesses. A year and a half ago, they were laying off the worst workers, emptied shelves and warehouses, slashed investment and factory output.
And energy companies did the same: they cut oil and gas production as demand for transportation fuels plummeted. Once the demand came back, they were not ready. He found himself scrambling to call back employees and buy enough to fill customers’ orders. The port and freight yard could not handle the traffic. Countries competed over boatloads of highly liquefied natural gas. From time to time the outbreak of COVID-19 led to the closure of Asian ports and factories. The global supply chain broke down.
As costs rose, many businesses found they could pass on a burden to consumers in the form of higher prices. Meanwhile, many families had deposited their government relief checks and deposited their savings. Some critics also blamed Bidens’ $1.9 trillion emergency aid package for overheating the economy and contributing to inflationary pressures.
Economists are divided about how long inflation will last. Gus Faucher, chief economist at PNC Financial, predicts that inflationary pressures will ease as supply chains settle themselves.
I expect inflation to slow down in 2022.”
What can the President do?
The White House has limited means to reverse higher prices. The task is more up to the Fed, which can raise borrowing costs to cool a burning economy. During the 1960s and 1970s, however, presidents felt pressure to do something about inflation as it became a serious political threat.
President Lyndon Johnson tried to persuade companies to increase prices and labor unions to limit wage demand, a process known as jawboning. When Bethlehem Steel raised steel prices in 1965, Johnson criticized his officers as unpatriotic, according to Robert Samuelson’s book, The Great Inflation and Its Aftermath, and they backed down. When egg prices rose in 1966, Johnson ordered the US Surgeon General to highlight the health hazards of cholesterol in eggs with the intention of reducing egg sales and therefore prices.
Nixon introduced wage and price controls in 1971 and 1973, which briefly suppressed inflation, only to see prices rise once the controls were lifted.
The Gerald Fords Whip Inflation Now program encourages Americans to grow their own vegetables, reduce their food waste, and consume less. The Americans responded mostly by mocking the program. Some wore the President’s Win button upside down, explaining that the resulting NIM stood for No Immediate Miracle.
What did Biden do?
Biden signed into law a $1 trillion public works program last week that puts money into fixing roads, bridges and ports, potentially easing the supply chain backlog that has contributed to rising prices. Resolving shipping bottlenecks would be doubly helpful: it would ease inflationary pressures and boost the economy by increasing the flow of goods to customers.
Last week, Biden sent a letter to the Federal Trade Commission asking the FTC chairman to investigate whether the high gasoline prices were the result of illegal conduct. The White House is also ramping up anti-trust enforcement of the meatpacking industry, seeking to increase competition and lower meat prices.
His decision to re-nominate Powell to lead the Fed was, in part, to reassure Washington’s financial markets with a pledge to keep consumer prices from spiraling out of their control. Another possible contender for the job, Lyle Brainard, a member of the Fed’s board of governors, was considered less inflationary.
Why Did Biden Tap the Strategic Petroleum Reserve Tuesday?
The idea was that adding more oil to the market would cause prices to fall. It hasn’t happened. But depending on what happens in the rest of the world, there’s still a chance it could work.
The US Petroleum Reserve holds about 605 million barrels of oil in underground caves in Texas and Louisiana. It was designed in response to the Arab oil embargo in the 1970s to store oil in the event of a supply disruption or emergency. But the dynamics of the global oil industry have changed dramatically in recent years, and the US now exports more oil than it imports.
The 50 million barrels Biden promised to release will likely be sold slowly, at around 1 million barrels per day, meaning the new influx of oil could last about two months. Jim Burkhard of IHS Markit said adding even a small amount of oil to the market could turn it into a surplus, and potentially lower the price.
He added that immediate price feedback is not the final judgment on the effectiveness of this effort. This will actually happen in the coming months.
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Busevitz reported from New York.
AP Economics writer Martin Krautsinger contributed to this report.
Disclaimer: This post has been self-published from the agency feed without modification and has not been reviewed by an editor
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