An ‘ugly’ inflation report dashed hopes that price gains would fade

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Friday’s inflation report delivered an unwanted surprise to the White House, the Federal Reserve and investors.

While many economists and some administration officials expected prices to show signs of cooling, they got the opposite: a further acceleration in price growth that makes it more likely the Fed will have to tighten brakes on the economy as it appears to be slowing the fastest pace of inflation in 40 years.

As one left-wing think tank put it, the report was “pretty lousy.”

The news dispelled the notion that inflation may have already peaked and further fueled the Biden administration’s greater domestic policy vulnerability, politically and economically, as the mid-term elections approach. mandate in the fall.

It also raised the odds that the Fed, which has already started raising borrowing costs to reduce demand, will have to make a series of larger interest rate hikes over the next few months.

Consumer Price Index data showed mounting evidence that the war in Ukraine was continuing to drive up prices for food, gasoline, electricity and other basics . Inflation in services, such as housing, remained high. Consumer goods inflation — which administration officials had hoped to slow as supply chain issues resolve in sectors like auto manufacturing — jumped again after a springtime slowdown. Costs of staples like eggs, meat and bread have soared, with an index measuring the price of food at home registering its largest annual increase since 1979.

The 1970s have called and he wants his inflation back. There is no room to water it down, TD Securities analysts wrote in a report shortly after the release. “The report should be very concerning for the Fed.”

After a senior White House official expressed hope to reporters Thursday that the report would show indications of an economy beginning to move toward what the president said is his goal of slower economic growth and more stable with lower inflation, administration officials and their allies did little on Friday to dispel any notion that the numbers were tough and disappointing.

The White House Council of Economic Advisers wrote in a series of Twitter posts that “price increases were broad-based”, while noting that core inflation – which excludes volatile commodities like energy and food – was down slightly from its average at the start of the year.

External allies were more direct. The liberal Washington Institute for Economic Policy wrote on Twitter that the report was “pretty ugly – and shows the pain workers and their families are feeling.”

Republicans blamed the president, as they have for more than a year, for the increases, saying his 2021 economic bailout bill had effectively overheated the economy. “The truth is, inflation didn’t just sneak up on the White House from Biden,” Rep. Jason Smith of Missouri, the top Republican on the budget committee, said Friday. “The warning signs were there from the start.”

Mr. Biden and his team have tried to make a delicate pivot on the issue of inflation, calling it a top economic priority and increasingly expressing sympathy for households struggling to cope with rising prices. They sought to reassure markets with a message of confidence in the Fed to manage inflation with interest rate hikes, while trying to project a sense of urgency with stocks that officials, will have a small effect, at best, on overall prices — like an announcement this week that the administration was suspending tariffs on some imported solar panels.

Officials also continue to look for other ways in which Mr. Biden could bring down the price of gasoline, which is largely dictated by global market forces and very difficult for presidents to influence in the short term.

At the same time, the administration has tried to convince Americans that Mr. Biden has a plan to lift the economy from its current state, which is frustrating consumers and weighing heavily on his polls.

The data refused to cooperate and the price spikes continue to hammer American families. A Labor Department statistic on Friday underscored the damage: It showed inflation-adjusted average hourly earnings fell 3% in May from a year ago.

Concretely, this means that the typical American worker has lost purchasing power over the past year.

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