High inflation is largely not Biden’s or Trump’s fault, economists say per CNBC

High inflation is largely not Biden’s or Trump’s fault, economists say per CNBC.

Inflation decelerated again in June, bringing further relief to consumers’ wallets.

The consumer price index rose 3% in June 2024 compared to June 2023, down from a 3.3% annual inflation rate in May, the Bureau of Labor Statistics reported Thursday.

While inflation isn’t quite back to policymakers’ long-term target of around 2%, it has cooled significantly from about 9% two years ago, the highest level since 1981.

But why did inflation initially take off?

The first U.S. presidential debate last month saw both candidates — President Joe Biden and former President Donald Trump — blaming each other for inflation-related issues during the pandemic era.

“He caused the inflation,” Trump said of Biden during the June 27 debate. “I gave him a country with no, essentially no inflation,” he added.

Biden countered by saying inflation was low during Trump’s term because the economy “was flat on its back.”

“He decimated the economy, absolutely decimated the economy,” Biden said.

However, economists say the cause of inflation isn’t so black and white.

In fact, Biden and Trump are not responsible for much of the inflation consumers have experienced in recent years, they said.

‘Neither Trump nor Biden is to blame’
Global events beyond Trump’s or Biden’s control wreaked havoc on supply and demand dynamics in the U.S. economy, fueling higher prices, economists said. There were other factors, too.

The Federal Reserve, which acts independently from the Oval Office, was slow to act to contain hot inflation, for example. Some Biden and Trump policies, such as pandemic relief packages, also likely played a role, as might have so-called greedflation.

“I don’t think it’s a simple yes/no kind of answer,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a left-leaning think tank. “In general, presidents get more credit and blame for the economy than they deserve,” he said.

Biden is seen as stoking high inflation partly due to optics: he took office in early 2021, around the time inflation spiked notably, economists said. Likewise, the Covid-19 pandemic plunged the U.S. into a severe recession during Trump’s tenure, pulling the consumer price index to near zero in spring 2020 as unemployment ballooned and consumers cut spending.

“In my view, neither Trump nor Biden is to blame for the high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The blame goes to the pandemic and the Russian war in Ukraine.”

The big reasons inflation spiked
Inflation has many tentacles. At a high level, hot inflation is largely an issue of mismatched supply and demand.

The pandemic upended the typical dynamics. It disrupted global supply chains and caused labor shortages: illness sidelined workers, child-care centers closed, making it hard for parents to work, and others were worried about getting sick on the job. A decline in immigration also reduced worker supply, economists said.

China shut down factories, and cargo ships couldn’t be unloaded at ports, reducing the supply of goods. Meanwhile, consumers changed their buying patterns, purchasing more physical items like living room furniture and desks for home offices as they spent more time indoors. This was a departure from pre-pandemic norms when Americans tended to spend more money on services such as dining out, travel, and going to movies and concerts.

High demand, which boomed when the U.S. economy broadly reopened, coupled with goods shortages, fueled higher prices.