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Inflation report was probably the best the White House could have hoped for

U.S. President Joe Biden delivers remarks on the November Jobs Report at the White House in Washington, United States, December 3, 2021.

Kevin Lamarque | Reuters

The Ministry of Labor report on consumer inflation showed that prices continue to rise.

But as hot as 6.8% year over year, inflation is, Friday’s consumer price index is probably the best the Biden administration could have hoped for at this point.

While virtually all economists expect inflation to remain high for the foreseeable future, some on Wall Street worried ahead of Friday’s data release that inflation could have jumped to 7% or more in November.

Some economists who spoke to CNBC suggested that the November report may show the first signs that inflation could peak in the coming months.

Bank of America economist Alex Lin said if it was time to stop calling inflation “transient,” a combination of factors lead him to believe inflation could peak around March. or April.

“We think the peak will likely be early next year, possibly in the first quarter,” Lin said. “And the reason we would say that is largely due to the type of base effects. As you recall from earlier this year, once it got around April [2021], core inflation was extremely hot. ”

Whether it’s too late for a White House seeking to overturn negative voters’ views on the economy, the president and his party before the 2022 midterm remains to be seen, however.

Fundamental questions

Core inflation is a more refined look at overall price increases that eliminates the often volatile price movements of energy and food. While the prices of gasoline, home energy and groceries are important to ordinary Americans, the Federal Reserve likes to watch core inflation because it is insulated from the statistical “noise” that fluctuations in prices. wild food and energy prices can bring a calmer model.

Between April and June, the core CPI rose an average of 0.85% per month – the fastest increases since the early 1980s – as millions of Americans looked to buy used cars before. the summer months. Core printing has since cooled and increased 0.53% between October and November.

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So, with these steep year-over-year comparisons, Lin said he doubts the U.S. economy will continue to see inflation continue to rise at the same rate.

“At the start of next year, the question is, can you repeat these types of printing? Lin spoke about the core inflation rates seen this spring. “In our opinion, that seems rather unlikely. ”

Granted, no one expects inflation to come close to the Fed’s 2% target anytime soon, and some say it could be years before price growth falls back to its levels. before the pandemic.

There are still several warning signs to watch out for in the coming months: Rent prices, which account for about 40% of core CPI, continue to rise and are fueling the cost of living for Americans across the country. country.

The annual increase of Asking rents for new move-in leases reached 13.9% in November, while rental prices rose 0.4% in October and 0.4% in November. These increases brought year-on-year rental inflation to 3% in November, still below its pre-pandemic rate but up from 1.9% in July.

“I guess the most notable aspect is that you are seeing some of the more persistent components start to work a little more firmly,” said JPMorgan chief economist Mike Feroli. “In particular the two major rental measures.

“Things like food outside the house tend to be quite sticky,” he added, noting that prices in restaurants and bars appear to be on the rise.

Price hikes in the restaurant industry should come as no surprise between well-documented inflation in the cost of protein and fierce demand among managers of cooks, waiters and other workers.

Headache for the White House

Economists are closely following the Labor Department’s monthly update on average hourly earnings for any suspicion of wage acceleration as employees seek to keep up with inflation and take advantage of the current labor shortage. .

While most economists say the Covid-19 pandemic is to blame for ongoing inflation issues, voters may seek to blame the White House for the continued rise in the price of gasoline and fuel. grocery store.

President Joe Biden’s approval ratings have suffered in recent months, and survey respondents continue to express concern about the U.S. economy and inflation.

CNBC’s most recent economic survey of all of America showed that Biden approval rate stabilizing at a low 41%. Still, the president’s economic endorsement has sunk deeper underwater at 37% versus 56% who disapprove, down from 40% to 54% in the second-quarter survey.

While Americans are still worried about inflation in November 2022, Biden and his fellow Democrats may find it difficult to maintain control of both the House, which has a narrow Democratic majority, and the Senate, which is divided by 50-50.

Reason for optimism?

White House Economic Advisor Cecilia Rouse sounded optimistic on Friday when she told CNBC that November’s inflation impression may be ahead of decelerating inflation in the first half of the year. next year.

“I think inflation will come down over the next few months,” Rouse, chairman of the White House Council of Economic Advisers, said after the CPI was released on Friday.

“Obviously that will depend on a number of things,” she added. “But as we work hard to get vaccines into the guns, as we vaccinate the rest of the world, economies around the world will heal and we will see inflationary pressures ease.”

Optimism about the chances of inflation moderating was not unique to Democrats.

Tony Fratto, a Treasury Department official in the George W. Bush administration, said he thought it was a good thing that the inflation data had lived up to expectations.

“I think before the print people were worried about having a bad surprise,” he said. “He nailed expectations.

“There are very good reasons to believe that inflation will moderate by 2022. Due to the withdrawal of budgetary support, the tapering, the adjustments on the issues of the supply chain”, he said. he continued. “Six or seven months from now we’re not going to talk about inflation like we talk about inflation today.”

U.S. stocks, which generally dislike higher inflation, seemed to ignore the fastest pace of inflation since 1982. The S&P 500 was up 0.62% in afternoon trading.

“I think I find some comfort, even if it’s just a little bit, that it hasn’t increased significantly, that it’s meeting expectations right now,” said Lindsey Bell, chief investment strategist at Ally Invest. “I think that the fact that we don’t make significant leaps, month after month, gives the impression that we are stabilizing.”