Of course, there are worse things than paying higher prices.
“Give people the choice between losing their jobs or paying more at the pump, people will take higher gas prices,” said Mark Zandi, chief economist with Moody’s Analytics. “You could kill the economy to get demand down, but you end up with a dead economy. It doesn’t make much sense.”
The high prices pose a significant problem for Biden, given the lack of steps the administration can take to fix a growing issue for US households.
“I don’t have a crystal ball to say exactly when it will peak,” a senior White House official told CNN this week. “But I can tell you we are doing all the things we need to do to keep prices in check.”
The role of the Fed
Tempering inflation is traditionally the purview of the Federal Reserve, which has a dual mandate to promote both employment and price stability.
But the central bank can’t exactly flip a switch to right the global economy. The Fed is using the tools it has to tame prices — namely, rolling back its pandemic-era emergency stimulus measures and signaling it plans to raise interest rates to limit the amount of money coursing through the economy.
The Covid factor
Some prices have started to retreat as production increases, spurred on by higher prices and a normalizing of the supply chain.
“The only solution to inflation pressures is getting the pandemic under control,” said Zandi.
While politicians frequently trade accusations about who’s to blame for price surges, most economists point to multiple causes, mostly tied directly or indirectly to the pandemic. And thus there’s not much that can be done to counteract those price pressures.
Most of the Covid relief measures that raised government spending passed with broad bipartisan support. And most of that money has already gone out to consumers, with little additional money still left in the pipeline. That means there’s nothing for the Biden administration to shut off to reduce demand and price pressures.
The pandemic also sparked a shift in spending. Rather than traveling or going out to eat or for entertainment, people spend on goods, and that has further strained the supply chain.
Energy costs — a classic American political lightning rod — are also significantly higher than a year ago, even with December’s easing. But much of those price surges are dictated by OPEC and other oil-producing nations. On top of that, the US now has less oil-refining capacity because several refineries permanently closed during the pandemic, and the US oil sector was hit by widespread bankruptcies after crude prices bottomed out during the pandemic recession.
— CNN’s Matt Egan contributed to this report