The data marks the last month in which rising prices eclipsed wage gains, virtually erasing the impact of wage increases celebrated since Biden as a sign of workers’ new bargaining power and the strength of the economic recovery.
This is also part of a larger picture: even though compensation has increased to a Annual rate of 2.8% in the three months ending in June, prices rose faster, leaving compensation lower than it was in December 2019 when adjusted for inflation, according to a recent analysis by Jason Furman, who was one of the Obama administration’s top economic advisers.
“It means households are falling behind,” Furman, now a Harvard professor, said in an interview. “When you have a vibrant economy, you get faster wage growth and faster price growth. And right now, price growth is winning the race.
The latest monthly figures come amid fears of soaring inflation, and as the White House has sought to allay concerns about its resistance.
Economists were quick to point out on Wednesday that some of the sectors that had seen the most dramatic price increases – used cars and trucks in particular – had slowed significantly in July, reinforcing the idea that a large part of the increase would likely be transient and prompt some to predict that inflation has peaked. And the White House noted that neither headline nor core inflation accelerated in July, a change from previous months.
“One month does not make a trend”, says White House Council of Economic Advisers posted on twitter. “And we know that supply constraints persist in various sectors. However, the deceleration in July is encouraging.
Still, the data shows that inflation, at least for now, has the greatest effect on families’ bottom lines, and it remains to be seen how long this will persist. Furman found that in June, actual pay was 0.7% below December 2019 levels and 2% below its pre-pandemic trend.
Officials in the Biden administration have always claimed that inflationary pressures will be short-lived, and they note that it is mainly the areas of discretionary spending that have been affected, meaning most families can avoid paying prices. higher if they are not buying used cars or looking to travel. A White House official on Wednesday blamed inflationary pressures on “mismatches” between strong demand and supply in sectors affected by the pandemic, adding that the administration expects the problem to subside once supply constraints resolved.
At the same time, officials have regularly celebrated workers’ wage gains, noting every month as wages rise: The White House press office published an article this week, stating that average wages in restaurants and supermarkets were over $ 15 an hour. for the first time.
For now, Biden officials are focusing more on getting people back to work than wage dynamics, people familiar with their thinking say. But they have been monitoring inflation data closely, which risks becoming not only an economic but a political vulnerability. Two in five voters saw Biden’s economic policies as “very responsible” for inflation, double the proportion who blamed the return to normal life as the root cause, according to a Morning Consult poll from the end of last month.
“They are very nervous,” Josh Bivens, research director at the Left Institute for Economic Policy, said of the White House. “On many fronts they would see the recovery going pretty well. And that’s the only kind of flaw in the armor.
The White House did not immediately respond to a request for comment on Wednesday.
Republicans have used the inflation data to criticize Biden’s economic program and vote against additional spending, arguing that the budget response so far is to blame for rising inflation. Sen. Rick Scott (R-Fla.), Who chairs the Senate Republicans’ campaign arm, tweeted Wednesday that “higher wages will never catch up with government-induced inflation.”
And Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, said Biden and Congressional Democrats are to blame for short-term inflation caused by generous federal spending. He said he sees a risk of long-term inflation if the labor shortages reported by some companies persist.
“It sounds like a devil’s triangle of bad policies driving inflation up,” Brady said in an interview. “I think the president denies how much this worries the families.”
This is a concern shared by some across the aisle as well. Sen. Joe Manchin (DW.Va.), whose Democrats will have to vote to pass their multibillion-dollar reconciliation plan, on Wednesday expressed concerns about rising inflation rates, he called “An inevitable tax on the wages and income of every American”.
Economists are divided on which direction inflation will take from here: whether it has peaked or not, whether this is all due to reopening challenges or longer-term struggles, and whether wages will be able to catch up.
But for now, “workers are treading water,” said Jay Shambaugh, professor of economics at George Washington University and a former member of the Council of Economic Advisers under Obama.
“The big question for politics is to what extent it is temporary,” he continued. “If the wage gains hold up but the price spike is more temporary… I think this is the world people are hoping for, where you have had some pretty substantial real wage gains over time. We are still seeing how it goes.