A top Democratic economist castigated the Biden administration for its denial over the root causes of soaring inflation.
On Friday, the Bureau of Labor Statistics announced that the Consumer Price Index rose at a 6.8% rate last month — the largest year-over-year increase in the metric since June 1982, as well as the sixth straight month in which inflation has remained above 5%. Expenses such as used gasoline, food, vehicles, electricity, and apparel are witnessing significantly higher price levels.
On Monday, Lawrence Summers — who worked as Treasury Secretary under the Clinton administration and National Economic Council director under the Obama administration — explained on social media that he “cannot understand” why White House officials “cling to the idea that inflation is caused by bottlenecks” and “will soon recede to normal levels.”
In November, for example, White House Press Secretary Jen Psaki argued that “everyone from the Federal Reserve to Wall Street” foresees a deceleration in inflation next year. Weeks earlier, Transportation Secretary Pete Buttigieg said that the overstimulated economy and supply chain bottlenecks are linked to Biden’s successful policies. Meanwhile, Treasury Secretary Janet Yellen claimed that the Build Back Better Act will “ease inflationary pressure.”
Summers also called it a “long shot” to believe that inflation will soon revert to “levels anywhere near” the Federal Reserve’s targets.
According to Summers, housing prices have increased by as much as 20% since last year — leading to a true inflation rate in the double digits. “Either the official indices are just wrong or more likely 3 to 4 points of inflation from housing are coming in 2022, even if there is no further increase in rents or home prices,” he explained. “This effect far exceeds any benefit from lower energy or used car prices.”
Summers therefore sees no immediate end in sight for high price levels.
“Given housing prices and tightening labor markets, there is no compelling reason to expect major deceleration in inflation,” he repeated. “But, even if inflation subsided to .2 percent a month, the annualized inflation rate would be 6.5% in March 5.1% in June and 4.0% before the election in September.”
“My guess is barring a major recessionary or financial shock next fall, headline inflation will round to 5 percent,” Summers deduced. “We are beyond where the Vietnam inflation took us but still have plenty of time to stop a late 1970s situation from developing, if we have the will.”
In comments made during a recent CNN interview, Summers predicted that the United States is poised to witness “inflation of a kind we haven’t seen in 30 years” unless the Federal Reserve tapers its monetary stimulus.
“I think it’s possible but quite unlikely that inflation will recede back to its normal 2 percent level without some significant change in the path … we’re now on,” he said. “I think the Fed has made a significant mistake in the approach that it’s taking by doubling down on the massive fiscal stimulus we had at the beginning of the year with really easy monetary policy.”