President Joe Biden’s plans to tout his stewardship of the US economy during his reelection campaign hit a snag yesterday when it was revealed that year-on-year core inflation stood at 3.9% through January. Now one economist warns that the prices of many basic goods will likely remain high even if inflation slows.
“I believe that some prices are here to stay,” said Larrea Wealth Management CEO Aquiles Larrea during an appearance on Sputnik’s Fault Lines program Wednesday. “When you talk about your basic food staples… some of them have not risen in so long that sometimes they [companies] use these events as a catalyst to raise the pricing. If you look at the companies, you know, Wal-Mart, all the supermarkets, they had record quarters once inflation started.”
“So yeah, prices went up quite substantially,” Larrea noted.
Observers have increasingly noted that corporate greed plays a role in high inflation, with private businesses often using global events as an excuse to raise prices even beyond what’s necessary to maintain profits during periods of economic disruption. Countries where the state plays a more active role in the economy, such as China and Bolivia, maintained low inflation rates in the wake of the global pandemic.
But the United States has pursued a more hands-off, neoliberal economic policy since the late 1970s. That’s when US Federal Reserve Chairman Paul Volcker defiantly declared that “the standard of living of the average American has to decline.”
Since then US Presidents have attempted to manage inflation through the raising of interest rates. The practice has been observed to eventually tamp down inflation, but it also causes significant hardship for Americans seeking to buy a home, take out a loan, or do any other kind of borrowing.
Larrea noted that higher interest rates have the potential to “snap us into a recession,” observing “that has happened before.”
Some observers predicted the Federal Reserve would seek to lower interest rates soon, but that’s now seen as unlikely given the recent data on inflation. Larrea claimed the adjustment could finally take place in August or September.
By then, the United States could inhabit an entirely different political reality as the proxy war in Ukraine fails and questions mount over President Biden’s age. If the Federal Reserve is finally able to lower interest rates, the occasion could represent a modest political victory for Biden. But Americans still must adjust to a permanently higher cost of living in any case.