Amid "Bidenflation" Barbs, What Can Biden Do About Inflation?

Mohit Oberoi, CFA - Author
By

Jul. 14 2022, Published 10:39 a.m. ET

U.S. inflation rose at an annualized rate of 9.1 percent in June, the highest level since 1981. U.S. inflation has been on an uptrend over the last year and even the Federal Reserve is worried about it getting entrenched. Meanwhile, Republicans have blamed President Joe Biden for the spiraling inflation and termed it “Bidenflation.” What’s causing inflation and what can Biden do about it?

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Since the beginning of 2021, the U.S. annual inflation has only fallen in two months, in August 2021 and April 2022. For four consecutive months now, the CPI has risen at an annualized pace of more than 8 percent, which is four times what the Fed is comfortable with.

Is Biden to blame for inflation?

Inflation is rising pretty much globally, across the developed as well as the developing world. Japan, whose policymakers have been trying to increase the stubbornly low inflation for years, is also witnessing rising prices. The U.K.’s inflation is also running above 9 percent while the European Commission has upwardly revised the euro area 2022 inflation forecast to 8.3 percent. In May, it had forecast a 2022 inflation of 6.8 percent.

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China is a notable exception though and the country’s CPI was 2.5 percent in June, which is quite low considering what we’re witnessing in other major economies.

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Republicans have been targeting Biden with “Bidenflation" barbs.

Amid the upcoming midterm elections, where Biden’s popularity has already taken a hit amid rising prices, Republicans are targeting the U.S. President by calling inflation “Bidenflation.” The Senate RPC (Republican Policy Committee) said, “Americans are feeling the heat from Bidenflation this summer.”

The RPC blames what it calls “Democrats’ $2 trillion spending spree” for the soaring inflation. Responding to criticism over his administration’s spending, Biden said, “We’re changing people’s lives!” The RPC took a swipe at Biden with data points on rising costs in the U.S. and said “There’s no disputing it: Bidenflation is changing people’s lives.”

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What can Biden do about inflation?

While the Biden administration might not agree, the massive spending by the federal government has indeed put upwards pressure on inflation. The Fed has already accepted that inflation wasn’t “transitory” and has embarked on one of the most aggressive tightening cycles.

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The Biden administration might also need to go slow on its spending spree to control inflation. While it would be a political suicide ahead of the elections, restarting student loan repayments would be a good starting point. The Biden administration is also looking to ease some of the tariffs on China. While it might not have an immediate impact, it would help lower prices in the medium term.

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Biden has taken steps to lower gas prices but can do more.

Gas prices have been another key contributor to high inflation. Biden has taken steps like the historic release from strategic oil reserves to lower oil prices. He has also approached Congress for a federal gas tax holiday.

However, Biden might need to do a lot more to lower gas prices for U.S. consumers. His visit to Saudi Arabia would be a good chance to reset the ties with the world’s largest oil exporter. He might need to balance between idealism and pragmatism after having previously called for making Saudi Arabia a “pariah.”

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To compensate for the Russian oil supplies, Biden might need to ease the sanctions on Iran or Venezuela. However, that’s easier said than done considering the backlash back home. Even easing China tariffs would put Biden in hot water especially as conspiracy theories are floating on Hunter Biden’s relationship with Chinese oil companies.

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