ZACK: Hi, this is Zack (ph) in Kissimmee, Fla. And like Tamara Keith, I also was the student representative to the school board back in high school. Unlike Tamara, I didn't pursue a career in journalism or politics. I became an actor at Disney World. This podcast was recorded at...
TAMARA KEITH, HOST:
1:40 p.m. on - what day is it? 1:40 p.m. on Thursday, July 14, 2022.
ZACK: Things may have changed by the time you hear it, but I'll still be singing about how (as Bruce) fish are friends, not food.
SCOTT DETROW, BYLINE: Oh.
(SOUNDBITE OF THE BIGTOP ORCHESTRA'S "TEETER BOARD: FOLIES BERGERE (MARCH AND TWO-STEP)")
KEITH: Wow, I just - I love the turn that that took.
DETROW: I was like, is he going to reveal which character he plays? And now I know. There we go.
KEITH: That was amazing. Hey there. It's the NPR POLITICS PODCAST. I'm Tamara Keith. I cover the White House.
DETROW: I'm Scott Detrow. I also cover the White House.
KEITH: And chief economics correspondent Scott Horsley is here. Hello, Scott.
SCOTT HORSLEY, BYLINE: Great to be back.
KEITH: So we are here to talk about the economy, in particular inflation. The president has little direct control over the economy, but he or she sure does pay the political price for it if things are not going well. And inflation continues to extract a toll on President Biden, who is suffering from downright terrible approval ratings as, you know, prices are high and so is partisanship. Scott Horsley, let's start with the news. Gas prices in the last month have been falling, but the latest measure of inflation out this week paints a stark picture of the realities facing consumers.
HORSLEY: That's right because this is the June inflation report, and we know that in the middle of June, gas prices hit an all-time high, just over $5 a gallon. Energy prices accounted for nearly half the overall inflation rate between May and June. And June's inflation rate was, once again, another four-decade high. Prices in June were 9.1% higher than a year ago. That's the the largest inflation we've seen since November of 1981. And so as prices go up, the president's approval ratings have been coming down.
KEITH: I was talking to a White House official today who pointed out that, as we said, gas prices have fallen since this measurement was taken, so that's true. And they are trying to steer us over to core inflation, which doesn't include gas or food prices. And they say that that has been falling. But I imagine that that is little comfort to people who actually have to buy food and gas.
HORSLEY: Right. Well, we should, first of all, acknowledge that gas prices have fallen a lot. The average nationwide today is $4.60 a gallon. So that's down $0.41 from the June peak. And given what's happened with wholesale prices, gas prices could come down quite a bit more in the coming weeks. So that is good. Food prices are still quite high. They're up - grocery prices are up more than 12% over the last year. But, you know, the core inflation, which strips out food and energy, doesn't really offer that much relief. Yes, core inflation in June was 5.9%, which was a little bit lower than the 6% rate we saw in May. But core inflation actually accelerated between May and June compared to what it was between April and May. So we're getting kind of mixed pictures there.
And the reason we talk about core inflation is not because, you know, we don't care about gasoline or food prices. Obviously, those are a big part of people's expenses. But because core inflation is really a better measure of where overall prices are going, and core inflation is still quite elevated. A big part of that is rent increases. Whether you're - whether you own a home or are renting an apartment, the cost of shelter is going up. And that's a big chunk of family budgets. And it tends to be pretty stubborn. You know, while gas prices might come down, rents rarely fall. And so this is a real challenge for a return to something like the 2% inflation that we're used to.
KEITH: Scott, as you've been following this, I do think it's important to hear from people who are in real life feeling the effects of this. Who have you been talking to?
HORSLEY: Yeah. I mean, for the typical American family, this means they now have to spend nearly $500 a month more just to maintain the same lifestyle that they were living a year ago.
HORSLEY: And for folks like Linda Foster (ph) in Tacoma, Wash., that's a real challenge.
LINDA FOSTER: We don't do discretionary fun. We don't go places that we don't have to go. And that's kind of as when we have spare money, it's like, what does the family need? What does the family want right now? And then our interests can just be pushed aside.
KEITH: Scott Detrow, the White House was pre-butting (ph) this report for days before it came out. They kept warning us and preparing us and kept trying to keep expectations down. But I don't know that they actually succeeded at softening the blow.
DETROW: Yeah, I think - and, you know, we've had several months to test this out. It seems to me that when they do an aggressive prebuttal, all it does is flag to everybody that, wow, the coming report is probably going to look really bad. I think in this particular case, they did have a fair point that gasoline prices have dropped drastically since, you know, the window that this last report was looking at. But other than that, you know, it's - I don't think there are many compelling arguments, even if, as Scott has said and we have said a thousand times, a big chunk of this is out of the president's control.
HORSLEY: It's also not a problem that's unique to the United States. I mean, inflation in the U.K. is actually a little bit higher than it is here in the U.S. Much of Europe is wrestling with very high prices. Canada has high inflation as well. This is a global problem. It all stems from, A, the pandemic and, B, the war in Ukraine. But that doesn't mean it's any less of a political challenge for President Biden, even if it's not, you know, mostly his fault.
KEITH: Right. I mean, it can be an international problem and a domestic political challenge for the president of the United States. And, Scott Detrow, like, what can they do? What can the White House do about this?
DETROW: Well, one thing they've tried to do is link some of their various legislative proposals to the argument that it would help with inflation - like, for example, climate in some sort of reconciliation deal, which is back on the table, possibly. Some sort of conversation is happening with Joe Manchin right at this very moment to resurrect a smaller version of the previously dead version of this conversation. But you notice at a certain point last year when inflation really became a huge problem that the White House couldn't just ignore anymore, you started to hear the White House talk about, you know, major investment in green energy, not as a long-term solution to climate change but as a way to help with inflation, to lower energy costs, which is true if, say, 10 years from now, all of these robust new clean energy areas are in place or electric cars are taking up more of the road space and people are paying less for energy. But that's not really a realistic argument to to talk about in the short term of things being more expensive right now for people.
HORSLEY: Let's be clear. The Biden administration does not have a lot of control over inflation. There are, however, some things the administration could do at the margins to make at least a small dent in these price hikes. For example, they could roll back some of the Trump-era tariffs that have raised prices for American consumers. The administration has said repeatedly that they're looking at doing that, but they haven't actually taken any action. They could also nibble around the edges of immigration. They could open the door to more immigrant workers, which would address the labor shortage that has also been a factor in driving up prices. Obviously, an overhaul of the immigration system would, again, take an act of Congress. But there are opportunities for the administration to increase the numbers at the margins, and so far, they haven't done so.
KEITH: So we have just talked about how there is maybe a shortage of really quick, easy political fixes for this. But we are going to take a quick break. And when we get back, more on what the Federal Reserve might be able to do and the ongoing political challenge that is inflation.
And we're back. And, Scott Horsley, I want to take you back a few months to the spring when you and many people with big degrees in economics and others suggested that the U.S. was at or near peak inflation, the idea that it was going to slow down. What happened?
HORSLEY: Yeah, it didn't. I was wrong (laughter). And I was in good company. And this has been true, really, for the better part of a year now where a lot of folks, much smarter than I am, have just been misjudging both the severity and the stickiness of inflation. For much of 2021, the inflation watchdogs at the Federal Reserve and at the White House thought that this was going to be a, quote-unquote, "transitory" problem that would work itself out as the pandemic eased. Now, the pandemic has not eased as much as they had hoped, but it also hasn't had the beneficial effect on inflation that they were expecting. And so inflation's just proven to be more more stubborn and more severe than we expected. There is certainly a possibility that the June inflation reading of 9.1% will prove to be the high watermark and will come down from here. But, you know, having been burned before, I'm not going to make any real confident predictions.
KEITH: So obviously, the Federal Reserve is correcting.
HORSLEY: Yeah, they've done a big course correction.
KEITH: They've raised interest rates more quickly than they had previously projected. And I have to imagine that this report is going to put more pressure on them to raise interest rates to try to cool off the economy.
HORSLEY: Yes, absolutely. And the challenge there is that raising interest rates does slow down consumer demand and eventually chips away at inflation. But it takes a long time. Generally speaking, monetary policy works with a lag of at least a year. And the Fed started raising interest rates in March. So it's probably not reasonable to expect much of an effect here in mid-summer. And, in fact, we're not seeing much of an effect. But there is increased pressure on the Fed to raise rates more quickly to frontload the effort to get inflation under control. We saw them raise rates by three-quarters of a percent in June. That was the largest increase since 1994. A lot of folks were expecting another three-quarter percentage point increase this month. But after the report came out on Wednesday showing inflation at 9.1%, the market started betting that the Fed would go even bigger and raise rates by a full percentage point at its July meeting. We don't know for sure if that's going to happen, but that's the way the market's betting right now.
KEITH: So, you know, usually when we talk about a political issue or a challenge, there are options that leaders have to respond. Here is this issue that is a huge concern to a lot of Americans. It has a thousand different causes. There's, like, basically one tool - raising interest rates - that could maybe do something eventually. And yet people want something done. Scott Detrow, this is sort of a unique challenge in politics and a unique challenge for this president right now.
DETROW: And yet it's really kind of the same problem that Biden is facing on so many issues that he and his party care about, right? Like voting rights, abortion rights, several other things, like, he does not have the full power or tools to directly address the issue. And I think the White House has compounded that lack of a real ability to deal with it by being kind of flat-footed many times. I mean, for how long of last year were people like Brian Deese, who's one of Biden's top economic advisers, directs the National Economic Council - he and many others in the administration were saying this was transitory, this was a short-term problem. This was nothing to worry about. Now, all of a sudden, it is like the dominant theme, not just in the U.S. but around the world. I think, you know, there's also an argument that kind of right off the gate, putting trillions of dollars into the economy certainly did not help.
KEITH: I will just also add, it is certainly easy and many Republican elected officials, Republican outside groups, are really tearing into President Biden for not doing enough about inflation or for inflation being so high. But when it comes to solutions, there truly are not a lot of options.
HORSLEY: We should say one thing they've done to their credit is stay out of the way of the Federal Reserve and give the central bank plenty of latitude to do its job, painful as that may be in raising interest rates and tamping down demand. That's not always been the case. I mean, we saw the former President Trump chewing out the Federal Reserve when they raised interest rates a number of years ago. Historically, that's often been the case. Presidents typically don't like to see interest rates go up because it does mean slower economic growth. But in this case, the Biden administration has recognized that job No. 1 is getting control over inflation.
KEITH: Yep. OK, well, this issue is not going away anytime soon, which means that we will inevitably hear from Mr. Sunshine Scott Horsley once again. But for now, we're going to say goodbye. Thank you, Scott.
HORSLEY: You know, I may be back next month to talk about a drop in inflation. Given where gas prices are, it's very likely that the July inflation numbers will will look better, at least on the surface, than the June numbers.
KEITH: All right. Mark it down. Mark it down, listeners. We'll find out whether Horsley was right or wrong next month on the NPR POLITICS PODCAST. I'm Tamara Keith. I cover the White House.
DETROW: I'm Scott Detrow. I also cover the White House.
KEITH: And thank you for listening to the NPR POLITICS PODCAST.
(SOUNDBITE OF THE BIGTOP ORCHESTRA'S "TEETER BOARD: FOLIES BERGERE (MARCH AND TWO-STEP)")
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