US inflation: prices fall but may not help Joe Biden ahead of midterms

One month of zero per cent inflation won’t be enough for US households to forget they lost $8656 of their income to inflation as the midterms loom.

Washington| A month of zero per cent consumer inflation was exciting news for an under-siege White House this week.

“Today, we received news that our economy had zero per cent inflation in the month of July.

Any hubris about the impact of inflation won’t help.

A May Gallup poll revealed that mentions of inflation as the most important problem facing the nation averaged only 1 per cent between 1990 and last year, but such mentions have increased to 18 per cent.

A survey by Statista showed that 44 per cent of US adults now think inflation is the most pressing issue.

A Pew Research Centre poll has it a lot higher, noting that 70 per cent of Americans think inflation is a very big problem.

For context, the same poll found only 42 per cent of Americans thought climate change was a very big problem, and only 19 per cent believed coronavirus was a very big problem – two issues Biden has prioritised.

A CNBC poll conducted in April found that 49 per cent of Americans thought Biden’s policies were a major cause of inflation, with lower percentages blaming Federal Reserve policies – 31 per cent.

The latest government effort to get prices down is the Inflation Reduction Act, a new $US437 billion bill passed by Congress and focused on climate, taxes and health care.

“I don’t think many economists think the Inflation Reduction Act will actually reduce inflation.

The problem is not that inflation will ease back from the 41-year high of 9.1 per cent, but that it stays higher than the Federal Reserve’s target of 2 per cent.

The president of the American Action Forum and a former director of the CBO, Douglas Holtz-Eakin, says the concern is that the public will not be happy waiting for another three years before inflation returns to the sustainable, healthy 2 per cent level.

Even if inflation suddenly drops off a cliff from the current 8.5 per cent to a more manageable 5 per cent, the average American will still be losing $US3376 through the invisible tax of inflation.

While there is some concern that this week’s CPI showed another increase in the price of food – the index has risen 10.9 per cent in the 12 months to July – some say there is a lag effect from commodity prices that could soon mean food prices are reduced.