"As I’ve long said, there may be setbacks along the way, but we face global economic challenges from a position of strength," Joe Biden said in an official statement after a new government report showed stubbornly rallying prices.
In his State of the Union Speech on February 7, the US president insisted that inflation had been largely tamed. This time, on February 24, Biden also tried to put on a brave face by claiming that "annual inflation in January is down from the summer, while the unemployment rate has remained at or near a 50-year low."
The Federal Reserve’s preferred measure for inflation is the personal consumption expenditures price index (PCEPI). The US mainstream media argued that the PCEPI is a better gauge than the Consumer Price Index (CPI) because it measures all consumption expenditures; for its part, CPI only examines a basket of goods purchased from individuals’ discretionary incomes. In addition, the PCEPI gets updated each month.
The PCEPI showed that headline inflation spiked 5.4% from a year ago as of January and 0.6% for the month. At the same time, core inflation (excluding volatile food and energy prices) grew 4.7% and 0.6% for the month. The trend means that the declines in inflation registered since its 9.1% peak in June 2022 has actually been reversed in January 2023, according to the US press.
The American Institute for Economic Research has projected higher than normal price increases through 2023 and, potentially, through much of 2024. It also warned that prices will continue to grow amid the Fed's interest rate hikes aimed at bringing inflation down to a 2% target. Moreover, once the Fed's mission is accomplished, one should not expect that prices will return to where they were before the spike in inflation. To send prices down, the nation would need a period of below 2% inflation, according to the entity.
In addition, two Federal Reserve regional bank measures have identified notable recession risks in 2024. A Cleveland Fed measure shows a 62.7% chance of a downturn by February 2024; while a New York Fed measure warns about a 57.1% recession probability by January 2024. The latest PCEPI report is likely to make the US central bank even more aggressive in raising interest rates, amplifying recession fears.
Meanwhile, the American press has suggested that US gasoline prices may go up again. Biden boasted on Friday that gasoline now costs about $3.40 a gallon on average in the country, i.e. down more than $1.60 since last summer’s peak.
Routinely, Biden blamed the peak on Russia's special military operation, which started in February 2022. However, the US president failed to explain how exactly Moscow inflicted so much pain to Americans at the pump, especially given that average US retail gasoline price exceeded $3.00 for the first time since late 2014 in May 2021.
Still, the US media bemoans the fact that even though gas prices have plummeted since summer 2022, they are still up some 40% from two years ago.
Some analysts cited by the US media warn that gasoline is poised to rise due to a looming shortage of a petroleum product called vacuum gas oil (VGO). Russia was the world’s largest exporter of the commodity, most of which went to the US and Europe. Now that western sanctions on Russian petroleum products have come into effect earlier this month, reduced imports of VGO could shrink the capacity of the US and its allies to make gasoline, according to the US media. The anti-Russia sanctions are likely to affect western diesel supplies, too.
The aforementioned factors may create a lot of headaches for the Biden 2024 presidential campaign. While the US media are sending mixed signals about Joe's 2024 plans, the first lady made it clear that Joe is "not done." One may only hope that the US economy will be in as good shape as the president in 2024.