Inflation is still too high
Timothy P. Carney
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It seems that about half of all commentary by economic writers these days amounts to: “The economy is great, and Biden would get more credit if only the people were smart enough to notice.”
The heart of their argument is that inflation is lower today than a year ago. Economist Justin Wolfers has been one of the most consistent voices shouting that things are getting better.
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Wolfers is right that inflation is receding. But it’s still too high. The numbers are right there in his tweet. Compared to last year, prices are 3.2% higher than a year before.
Prices going up 3.2% per year is a bad thing! We are used to 2% inflation, and economists generally agree that is the right rate.
It doesn’t make it any better that prices were rising even faster last year and the year before. That makes it worse! High inflation is bad. Three straight years of high inflation is worse. Slightly lower high inflation is not good news, it’s less-bad news.
Since the Great Recession, until the Biden presidency, no calendar year had a consumer price index increase of more than 3.2%, which is the current annual rate of inflation. Only three years in the last 30 have had inflation higher than 3.2%. The last time a president was up for reelection in a year with inflation above 3.2% was 1992, and that president, George H.W. Bush, lost because of the economy.
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If economists like Wolfers have an important message about the Biden economy, it’s a forward-looking message that Democratic Party consultants should chill out. Wolfers is saying that inflation is on the way down. That doesn’t make people like Biden today, but it means that inflation could be down around 2% soon, and it could be at that normal rate for many months before Election Day.
That is, if inflation drops below 2.5% in early 2024 and stays that low through November, a lot of people would be happy because we would have been free from high inflation for nearly a year. That’s a good point. But it doesn’t mean people should cheer 3.2% inflation.