But there’s a big problem with that narrative: It may not be the whole story.
“Executives are seizing a once in a generation opportunity to raise prices to match and in some cases outpace their own higher expenses, after decades of grinding down costs and prices,” write Kristin Broughton and Theo Francis.
Most of the largest US companies are making more than enough money to account for inflation, they write, citing profit margins at many large US companies that are well above 2019 levels.
Companies complain of not being able to find workers and having to deal with the supply chain problem — but if they are also building bigger profits behind inflation, that’s enough to aggravate even the biggest supporter of free markets.
The Washington Post reported this weekend that the White House is considering turning a more circumspect eye toward corporate America, perhaps to deflect the political heat President Joe Biden has taken for the economy’s performance.
He suggests this is an idea under consideration, but there are already some indications Biden will take a tougher view. Last week, he called on the Federal Trade Commission to investigate the oil and gas industry for price gouging as the cost of fuel shoots up.
There are complicating factors for every industry.
Inflation is temporary. But temporary is a relative term. Mark Zandi, chief economist of Moody’s Analytics, recently wrote in a CNN piece that all the price increases have added nearly $200 per month in living expenses for a household making the median income.
“A year from now, as the pandemic recedes, inflation will be low enough that we won’t be talking about it,” according to Zandi. “The hair-on-fire discourse over high inflation is understandable, but it’s overdone.”
A year can be an eternity. But let’s say inflation is in the news for another year. That gets us through a congressional election in which Republicans are already at a historic advantage.
The Democratic economist Larry Summers, who has been something of an inflation hawk, warns in The Washington Post that inflation, specifically, could lead to a second Donald Trump presidency.
He will see opposition on both sides of the aisle as a Senate confirmation vote approaches. Originally nominated by Trump, Powell ultimately found himself the subject of the then-President’s attacks for not lowering interest rates enough to his liking.
While Powell has repeatedly acknowledged the problem of income inequality and urged the government to address it, he has angered liberals for not being strong enough on Wall Street regulations.
Biden nodded to progressives by nominating Lael Brainard to be the Fed’s vice chair, but keeping Powell shows he’s tuned in to economic stability as the top issue of his presidency.
“If inflation is a political liability for Biden, then that favors continuity at the Fed,” Ed Campbell, a portfolio manager and managing director at PGIM Quantitative Solutions, told La Monica.
What can the Fed do to fight inflation? Raise short-term rates. CNN’s Chris Isidore writes that the Fed slashed rates during the pandemic and bought assets to put more cash into the economy, which helped keep markets from plunging.
But the moves also may have driven inflation.
There’s one anti-inflation tool Biden hasn’t used. There aren’t too many things Biden can do about inflation. He’s used executive action to help ease supply chain issues at ports and asked for accountability from the oil and gas industry. But he doesn’t control the Federal Reserve, so he can’t just raise interest rates.
Why not simply do it? Politics.
“The reason to do this or not to do this should not be inflation,” Richard Haass, a top State Department aide under President George W. Bush who now heads the Council on Foreign Relations, told Harwood. “The impact on US-China relations, and the domestic politics of US-China relations, would be larger than any impact on inflation.”
The tariffs have cost American consumers and failed to revive American manufacturing. But even though they’ve failed as an economic measure, reinstating them might cost Biden too much politically, writes Harwood.
Ending tariffs without getting something in return would only encourage Republican accusations that the President has been soft on China.
Republicans are likely to accuse Biden of many things, however. One major thing they accuse him of these days is driving inflation.