US inflation is improving, the public’s attitude is still negative
The most recent inflation figures, released on Tuesday, provided positive news for the White House and the Fed: total prices did not rise between September and October.
The average cost of most items that go into a shopping cart has remained relatively constant for a year, food costs have been mostly stagnant for months, and gasoline prices have decreased by nearly 10% since a year ago. These facts are all relevant as American households get ready to host Thanksgiving dinners next week.
However, when it comes to public sentiment, President Joe Biden and the Federal Reserve have not benefited from the gradual decline in inflation. One constant has caused attitudes about both to continue to deteriorate: prices for goods are still higher than they were before to the coronavirus outbreak and are probably going to stay that way.
Inflation decreases, while prices remain unchanged. When questioned about common misconceptions held by the public, Fed Governor Christopher Waller responded last week at a research conference, "They're just going up at a slower rate." People's current thought is that prices should return to what they were in 2021. It is not going to occur. These costs are most likely here to stay."
The Fed and the White House were rewarded on Tuesday when the most recent inflation data revealed that prices did not rise overall between September and October. This represents a rare break from the continuous upward trend that has reduced the purchasing power of the U.S. dollar by roughly 15% since Biden took office in early 2021.
Additionally, there are grounds to believe that inflation may continue to decline.
Despite the fact that increases in housing costs are happening more frequently than anticipated, Wall Street and Fed analysts are optimistic that this sector, which makes up a sizable amount of the consumer price index, is about to see a decline. In addition, recent inflation has been fueled by services like video streaming and auto insurance, which will probably only be one-time adjustments. For instance, insurers may raise premiums to cover past increases in vehicle prices that have leveled out.
However, a Reuters/Ipsos poll conducted in early November showed that Biden's unfavorable rating had increased to 56% and had remained above 50% ever since prices started to climb as the economy recovered from the pandemic. Prior polls revealed a strong partisan bias, but around 60% of participants disapproved of the Democratic president's handling of inflation and 56% of his handling of the economy as a whole. While just 41% of respondents endorsed Biden's management of the labor market, 46% of respondents disagreed despite the unemployment rate being quite low.
For the Fed, the outcomes have not improved all that much. A record 25% of participants in a Gallup poll conducted in September rated the central bank's performance as "poor". It was only doing a good or excellent job, according to 36% of respondents, the lowest number in a decade.
A DIFFICULT CHANGE
The results corroborate a finding that has plagued public authorities for many years. When it comes to fundamental home economics, negative news is slowly forgotten by the public.
For instance, after accounting for price increases, government stimulus payments, and shutdowns throughout the wild pandemic ride, inflation-adjusted salaries as of this past September are roughly 6% higher than they were on the eve of the COVID-19 outbreak in January 2020. Put another way, larger wallets have more than offset the decline in the value of the dollar.
However, polls continue to reflect a lack of optimism about the future. A New York Fed study indicates that although inflation expectations have decreased, they are still much higher than the central bank's 2% target. According to the same study, almost 31% of respondents thought that their household's financial status would worsen in a year as opposed to 28% who thought it would improve.
Prior to the pandemic, sentiments of "somewhat" and "much" better off were generally two to four times higher than those who thought things would get worse.
However, as inflation picked up speed, the atmosphere grew increasingly gloomy; for example, the shock of a 20% increase in food prices from March 2021 to March 2022 resonated more than the reality that food prices had remained essentially stable in 2023.
It is difficult to alter these opinions once they have been formed, according to Jeff Jones, a senior editor at Gallup. "There have been previous instances of a weak economy. The unfavorable assessments endure and require an extended duration of continuously positive economic updates in order to reverse.
CHANGING ATTIRE
In less than a year, Biden will be up for reelection, but the Fed takes great satisfaction in being unaffected by political figures and public opinion.
If economic data continue to show weaker job growth and slower inflation, the focus that has been mostly on inflation over the past two years may begin to shift.
In remarks akin to those made last week regarding the expectation that prices will decline—something they don't usually do—both Waller and Fed Governor Lisa Cook acknowledged the attitude of the public.
However, should inflation data persist in indicating a deceleration, the Federal Reserve may prioritize maintaining the robustness of the labor market. In fact, investors increased their bets for rate cuts starting in the spring of next year following the announcement of the CPI data on Tuesday.
An analyst at Monetary Policy Analytics named Derek Tang said ahead of Tuesday's data, "Seeing as prices will never come back down... then the only way to win back the hearts and minds of the public is to make sure real incomes rise enough."
"As long as inflation does not rise again ... the (Fed) might opt to make sure the real side remains healthy enough to generate income growth to let spending power catch up."