U.S. consumer prices spiked again in June, extending the highest rate of inflation in 13 years and emerging as a political threat to President Biden’s big-spending infrastructure proposals ahead of next year’s midterm elections.
The Labor Department reported Tuesday that consumer prices rose 0.9% in June from May and 5.4% over the past year — the highest jump in 12-month inflation since August 2008. Core inflation, excluding fuel and food prices, rose 4.5% in the past year, the biggest increase since September 1991.
The number was once again well above private economists’ expectations and Republicans have taken to calling the higher cost of gas, groceries and other necessities “Joe Biden’s hidden tax on Americans.”
The persistent rise in prices complicates the trillion-dollar infrastructure initiatives of Mr. Biden, who has been promising that the spike in inflation is a temporary response as the post-COVID economy clanks back into service. But Republicans showed Tuesday that the consumer crunch is becoming a campaign issue in the 2022 elections.
Senate Minority Leader Mitch McConnell said the administration and congressional Democrats were warned by economists earlier this year that “overspending and over-borrowing would unleash inflation, slow re-hiring, and hurt small businesses.”
But the Kentucky Republican said Democrats “rushed ahead” with a $1.9 trillion pandemic relief package, and now want to follow it up with roughly $4 trillion in two more spending plans. Democrats aim to pass one of those packages, calling for more money for social programs such as paid leave and expanded child-care aid, through “reconciliation” budget rules to avoid a GOP filibuster.
“What Democrats say they want to force through this summer through reconciliation would make our current inflationary mess look like small potatoes,” Mr. McConnell said on the Senate floor. “Nobody seriously thinks our country needs another gigantic overdose of over-borrowing, overspending, and over-taxing. And this isn’t what the American people voted for, either.”
But Senate Budget Committee Chairman Bernard Sanders, Vermont independent, said after meeting with Mr. Biden on Monday that he’s still pushing for $6 trillion in new spending.
“A strong majority of the members of the Democratic caucus want to go as big as we possibly can,” Mr. Sanders said.
White House deputy press secretary Karine Jean-Pierre said Tuesday that Mr. Biden’s proposal for tax increases to pay for part of the plan, dealing with new roads and bridges, is “reasonable and responsible.”
Republican lawmakers who have returned from their districts over the Fourth of July holiday say they’ve heard complaints from constituents about higher prices and shortages.
“Families are paying more for everything they need to get by and it’s a direct consequence of [the] House Democrats’ decision to blow trillions of taxpayer dollars on pork, pet projects and paying people not to work,” said Calvin Moore, spokesman for the Congressional Leadership Fund, a super PAC supporting House Republicans. “Democrats took over Washington and all the American people got for it is increasing costs of living, increasing unemployment rates, and increasing crime rates.”
Even some Democrats also are voicing concerns about the pace of inflation, warning that Mr. Biden’s ambitious spending plans threaten to overheat the economy.
“Recent wage increases will mean nothing for workers if inflation escalates,” tweeted former Obama administration economic adviser Steven Rattner.
The White House pointed Tuesday to increasing business optimism as proof that Mr. Biden’s economic plan is working, citing a survey by the National Federation of Independent Business.
“As President Biden gets the pandemic under control, more small businesses are in a position to fully reopen, rehire, raise wages, and rebuild,” the White House said. “In the months prior to taking office, small business optimism was falling and the economy was in crisis. Thanks to President Biden’s leadership, a robust vaccination campaign, and a historic relief package, optimism has increased by nearly 8 percent since January and the economy is now creating more than 600,000 jobs on average each month.”
Democrats also cite what they call the hypocrisy of Republicans warning of government spending and rising deficits after rarely citing those problems under former President Trump.
Sending out checks
The inflation data came just as the administration’s expanded Child Tax Credit begins arriving in the bank accounts of millions of parents.
“While President Biden and Democrats are delivering, every single congressional Republican worked tirelessly to block critical help from reaching these families and their children by voting against this relief after a year of challenges,” the Democratic National Committee said.
Stocks were down Tuesday modestly on the hotter-than-expected inflationary news, which tempered a strong start to the second-quarter earnings season. Investors are worried that rising inflation could prompt the Federal Reserve to raise lending rates earlier than expected, which could threaten the recovery.
Fed officials have repeatedly said, though, that they regard the surge in inflation as a temporary response to supply shortages and other short-term disruptions as the economy quickly bounces back.
Prices for used cars and trucks soared 10.5% from May — the largest such monthly increase since record-keeping began in January 1953. That spike accounted for about one-third of the monthly increase for the third straight month.
The cost of air fares and clothing also rose sharply in June.
The jump in prices stems in many cases from a shortage of components and goods throughout the economy, from semiconductors to used cars, as well as surging demand from consumers who are increasingly traveling, shopping and eating out — and too few workers to serve them. Wages have increased sharply as a result, along with restaurant meals, airline fares and hotel rates.
Hotel room prices soared 7% in June. And the cost of new cars jumped 2%, the biggest monthly increase since May 1981. Auto prices have soared because the shortage of semiconductors has forced car makers to scale back production.
Restaurant prices rose 0.7% in June and 4.2% in the past year, a sign that many companies are raising prices to offset higher labor costs.
Mr. McConnell and other Republicans are laying the blame on Democrats’ policies.
“I just spent two weeks hearing from my fellow Kentuckians and they are already paying a heavy price,” Mr. McConnell said. “Manufacturers are still absolutely hammered by supply-chain shocks. Employers large and small say the Democrats’ special bonus for workers who stay Families, he said, “are feeling it everywhere — from the supermarket to the gas pump to housing to the used car lot. And beyond.”
“All thanks, in large part, to the Democrats’ half-baked spending spree from the springtime,” Mr. McConnell said. “And now they want an even more absurd, even more damaging summer sequel.”
The National Republican Senatorial Committee, the campaign arm for Senate Republican candidates, said voters should remember the impact of Democrats’ policies “every time they open their wallets to pay more for goods they need.”
“Democrats have outsourced their economic agenda to socialists and the result has been the highest inflation rates in decades,” said NRSC spokesman T.W. Arrighi. “Sadly, it appears relief may be delayed as Senate Democrats propose new and worse spending proposals. If they don’t wake up soon, voters will wake them up by handing Republicans sound majorities in Congress in 2022.”
So far, investors have largely accepted the Fed’s belief that higher inflation will be short-lived, with bond yields signaling that inflation concerns on Wall Street are fading. Bond investors now expect inflation to average 2.4% over the next five years, down from 2.7% in mid-May.
Americans’ longer-term views on inflation have also leveled off. A survey by the Federal Reserve Bank of New York, released Monday, found that consumers expect inflation to remain near 5% a year from now. But they expect inflation to be 3.5% three years from now, down slightly from last month. Consumers typically overestimate future inflation.
The public’s expectations of inflation are important, because they can be self-fulfilling. If consumers foresee higher prices, they are likely to demand higher pay, and businesses will try to charge more to offset their higher costs.
The Fed is aiming for inflation to exceed its target of 2% for some time to make up for the fact that inflation fell below that level for most of the past decade. The Fed wants inflation to average 2% over time to prevent Americans’ inflation expectations from falling too low.
• This story is based in part on wire service reports.