WASHINGTON — Inflation threatens to stagnate President Joe Biden’s agenda, and Republicans say it will help them decimate the Democratic majority in Congress.
“Next year’s election will be a referendum on grocery prices and you can expect Republican challengers to talk about little else between now and then,” said John Ashbrook, co-founder of the public affairs firm Cavalry and a former aide to Senate Minority Leader Mitch McConnell, R-Ky.
From cartons of eggs to used cars, prices are rising with an intensity that consumers haven’t seen in decades, even as interest rates creep up. Even though the broader picture is brighter — the economy is growing and adding jobs — some Democrats worry that voters will pay more attention to the cost of a gallon of milk than macroeconomic trends.
Rather than scaring them off, though, the political uncertainty of a mixed-bag economy has added to most Democrats’ sense of urgency around passing Biden’s $1.75 trillion “Build Back Better” plan, which would fund efforts to combat climate change and bolster the nation’s social safety net.
The president’s party tends to lose numbers in Congress in the midterm after his first election, and Democrats have no seats to spare in the Senate and only a handful to spare in the House. Besides, Democratic strategists say, the party’s better off if incumbents can show they helped deliver family-budget benefits, such as the bill’s expansion of the child tax credit.
“Democrats should do this not because of any argument about the economy, but because when you have power and the chance to make major policy change… you do it,” said Democratic pollster Anna Greenberg. “You have a narrative and a story to tell when you’re running, and I think that is more important than trying to game out how it’s going to affect inflation.”
But the rub lies in the Senate, where Sen. Joe Manchin, D-W.Va., has urged his colleagues to slow down consideration of the bill — which carries a $550 billion investment in green energy — at least in part because of concerns about inflation.
“By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse,” Manchin said in a tweet. “From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day.”
The phrase “inflation tax” is one often used by Republicans to describe the pain of rising costs, and Manchin’s adoption of it was widely received as inauspicious for Democrats’ chances of enacting the measure on a quick timetable.
“As to how [inflation] affects Build Back Better, obviously the answer is how it affects Joe Manchin,” said Rep. John Yarmuth, D-Ky., the chairman of the House Budget Committee.
Democrats can’t be sure what the cost of a basket of household goods will be a year from now — the Labor Department’s last measure of that Consumer Price Index in October showed a year-over-year increase of 6.2 percent — which makes it difficult to project how much of a factor it will be in the midterms. That helps explain why it hasn’t made the White House re-think its own legislative agenda.
Over time, the Biden administration has transformed its message on inflation. At first, White House officials ignored it. Then, they dismissed it as “transitory.” And now they say passing the Build Back Better bill will reverse it. So are their allies in academia and in Congress.
“I have no doubt he is going to get the Build Back Better, and that it’s going to help with inflationary pressure,” Rep. Ro Khanna, D-Calif., a progressive leader in the House and Biden ally, said on MSNBC’s Stephanie Ruhle Reports Friday.
The basic economics are easy to understand: prices are going up because demand is out-stripping supply. Congress and successive presidents — Biden and Trump — borrowed several trillion dollars and put much of it in the hands of consumers to offset the economic effects of the pandemic. At the same time, the country is suffering shortages and delays in the delivery of goods, many of which are related to global supply-chain disruptions.
From there, both the economics and politics are complex, and the potential solutions could be more harmful than helpful. The easiest counter-measure would be for the Federal Reserve to raise interest rates, but that would discourage borrowing and could slow the economy. In other words, it could be that interest-rate hikes are worse for most Americans than inflation.
But far more voters spend time looking at the prices of household goods than parsing Labor Department reports, which means that sticker shock can overwhelm broader economic trends.
“The politics are very different than the substance,” said Aaron Klein, a former Treasury Department official and senior fellow in economics at the Brookings Institution, a left-of-center Washington think tank. “If people get concerned that their money is worthless, then their view of the economy sours” which can lead to anger at the governing party.
From a policy perspective, he said, the work going on in Congress is less consequential than the actions of the Federal Reserve board, which can raise or lower interest rates to alter the allure of borrowing and indirectly affect prices.
“How this economy deals with the threat of inflation will be determined by who Biden picks for the Fed more than whether Congress passes Build Back Better,” he said.
Yarmuth said he believes economists who say that Biden’s proposal will not add to inflationary pressure and that the price of gas — a quick measure of costs for many consumers — will settle down before the midterms.
But, he said, a recent trip to Costco demonstrated the degree to which groceries and other goods are becoming more costly for families.
“I was amazed at how much the price has gone up on the things that I buy,” he said. “Obviously, if things were to continue to get worse in the inflationary picture, that would be bad.”