U.S. consumer prices spiked again in June, extending the highest inflation rate 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% from May to June 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 costs 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 pandemic lockdown economy clanks back into service. But Republicans showed Tuesday that the consumer crunch is becoming a campaign issue.
Senate Minority Leader Mitch McConnell, Kentucky Republican, said economists warned the administration and congressional Democrats earlier this year that “overspending and overborrowing would unleash inflation, slow rehiring and hurt small businesses.”
He said Democrats “rushed ahead” anyway with a $1.9 trillion coronavirus relief package and want to follow it up with roughly $4 trillion in two more 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 Republican 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 overborrowing, overspending and over-taxing. And this isn’t what the American people voted for, either.”
Senate Budget Committee Chairman Bernard Sanders, Vermont independent, said after meeting with Mr. Biden on Monday that he will push 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 returned from their districts over the Fourth of July recess say they 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, a 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 are voicing concerns about the pace of inflation and warning that Mr. Biden’s ambitious spending plans threaten to overheat the economy.
“Recent wage increases will mean nothing for workers if inflation escalates,” former Obama administration economic adviser Steven Rattner said in a Twitter message.
The White House, citing a survey by the National Federation of Independent Business, pointed to increasing business optimism as evidence that Mr. Biden’s economic plan is working.
“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 President Trump.
Sending out checks
The inflation data was released just as the administration’s expanded child tax credit was expected to arrive 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 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, threatening 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 rebounds.
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 airfare 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, including semiconductors and used cars, and surging demand from consumers, who are increasingly traveling, shopping and dining out — with too few workers to serve them. As a result, wages have increased sharply along with restaurant meals, airfares 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 manufacturers 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.”
He said employers have been hit by incentives for workers to stay home, and families “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 committee 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 the higher labor costs.
The Fed is aiming for inflation to exceed its target of 2% for some time to make up for falling below that level for most of the past decade. The Fed wants the inflation rate to average 2% over time to prevent Americans’ expectations from falling too low.
• This article is based in part on wire service reports.
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