**Editor's note: This article was only partially published on August 16 in error. The full article now appears below.
“In case you haven’t noticed, inflation is down, too, and it’s going lower,” President Joe Biden said Tuesday during a speech in Milwaukee to tout his economic agenda.
But many Americans haven’t noticed. In a CBS News/YouGov poll from late July, 69% of U.S. adults said prices had been going up in the last few weeks (versus 6% who said prices were going down), and 70% said their income was not keeping up with inflation. In another July poll by CNBC, 79% of U.S. adults rated the economy’s current state as fair or poor, with inflation given as the most frequent reason. In an August CNN poll, only 30% of Americans approved of Biden’s handling of inflation.
Who has their facts right on inflation? As is often the case in politics, the answer is: it depends. It depends on what is meant by “inflation,” what is meant by “down,” and what is meant by “going lower.” Let me explain.
Measuring Inflation
Inflation is most commonly reported — in The Washington Stand or any other outlet — as a percentage, based upon the Consumer Price Index (CPI). A team of economists at the Bureau of Labor Statistics (BLS) compiles price data from tens of thousands of businesses around the country each month. These prices are then applied to a single, standardized “basket” of goods and services (which remains the same from month to month), designed to reflect the average consumer’s expenses. This process yields a mathematical sum, which is the CPI for that month. Dividing the CPI for one month by the CPI for an earlier month yields the percent change in CPI, which is what most people mean when they speak of inflation as a number.
So, for instance, BLS reported on August 10 that the CPI in July 2023 was 0.2% higher than in June 2023, and 3.2% higher than it was in July 2022. We would say that monthly inflation was 0.2% — the same as June and higher than May (0.1%) — while annual inflation (or, the annual inflation rate) was 3.2%.
President Biden was likely using this annual inflation statistic. The annual inflation rate peaked in June 2022 at 8.9%, but now it stands at 3.2%. In this sense — certainly a legitimate one — inflation has come down, but it isn’t going lower. The annual inflation rate for July (3.2%) rose from June (3.0%), ending a 12-month streak of decreases in the annual inflation rate. The result could be a blip, but Biden describing the decline with the “present continuous” verb tense is not currently accurate.
There’s another possibility. Some economists prefer to analyze inflation through a slightly modified CPI statistic, which omits the food and energy categories as too susceptible to dramatic, short-term price swings. According to this metric, known as “all items less food and energy,” annual inflation peaked at 6.6% in September 2022 and now stands at 4.7%. According to this measurement — also legitimate — inflation has come down, and it’s also going lower.
But Biden doesn’t often use inflation calculated from the CPI measure of “all items less food and energy.” For one thing, the measurement shows a far more modest decline in inflation (6.6% - 4.7% = 1.9%) than that calculated from the regular CPI (8.9% - 3.2% = 5.7%). For another, annual inflation based on the CPI of “all items less food and energy” has exceeded that of the CPI of “all items” since March. Thus, in July 2022 he boasted that the monthly change in CPI was 0.0%, citing the regular CPI measure, while the CPI of “all items less food and energy” showed a monthly increase of 0.3%. It would be intellectually dishonest to jump between different statistics for no reason other than which one was most politically expedient at a given moment. For this reason, it’s better to analyze Biden’s claim based on the percentage change in the regular CPI measure of “all items.”
Comparing Inflation
There is another important question to answer before determining whether inflation is, in fact, “down”: compared to when? Biden would prefer to compare the current moderate inflation (3.2%) with last year’s summer pinch (8.9%). Over this time period, the rate of inflation has decreased by nearly two-thirds. But that isn’t the only possible comparison, nor arguably the most relevant.
Another reasonable comparison is to compare the inflation rate with what Biden inherited when he began his term as president. This is a plausible comparison because Biden’s inflation claim is part of his reelection pitch to voters; instead of evaluating the past 13 months, it’s more reasonable for voters to evaluate Biden’s entire term in office. In January 2021, the annual inflation rate stood at 1.4%, according to BLS. It stands at more than double that rate today.
As inflation began to climb, Congress and President Biden poured gasoline on the blaze with multiple trillions of dollars in spending. All the while, Biden called the mounting inflation “transitory,” claimed “no serious economist” foresaw “unchecked” inflation, and inaccurately predicted the U.S. had reached “the peak of the crisis” in December 2021 when annual inflation stood at 6.8%. The Federal Reserve began to incrementally raise interest rates, but the effect of that monetary tightening was offset by the free spending in Washington. Finally, the Federal Reserve’s rate hikes turned the corner on inflation in mid-2022. Given this history, it’s unreasonable for Biden to expect voters to only consider him responsible for the recent decline in inflation, and not the preceding spike (although, as president, he has limited control over either).
Historically speaking, the current inflation rate is still higher than the 20-, 30-, and 40-year averages (2.5%, 2.5%, and 2.8%, respectively), not to mention the Federal Reserve’s target rate (2.0%).
Feeling Inflation
We’ve analyzed the plausibility of Biden’s claim, but we haven’t yet uncovered why so many Americans are still bearish about inflation. To do so, we must return to answer the question: what is inflation? This is distinct from the question we answered earlier: how do we measure inflation?
Inflation occurs when a currency (such as the U.S. dollar) loses its purchasing power. When this happens, it takes more dollars to buy the same amount of goods and services. Or, looked at the other way, the same amount of dollars can buy fewer goods and services. From the economist’s perspective, this phenomenon can be measured by creating a hypothetical measuring stick like the CPI and analyzing its change over time.
Ordinary people interact with inflation differently. From their vantage point, they lack the data to measure macroeconomic trends. But they do notice when gas prices go up. They notice when a trip to the grocery store breaks their budget. They notice when their rent goes up. These are regular expenses for almost every American consumer, and having to pay more for them makes them angry.
Ordinary people feel inflation more than they see it. They neither know nor care whether the CPI has risen by a certain percentage, but they do care very much that the items they purchase regularly cost more. For ordinary people, an abstract notion of “inflation” is indistinguishable from their concrete experience of “high prices.”
This explains why Americans aren’t enthusiastic about the inflation rate declining from “high” to “moderate.” What they care about is that prices are still high. As the table below demonstrates (note it is cropped for clarity and emphasis), the raw CPI numbers continue to rise, even though the inflation rate is down. From March 2020 to January 2021, the “all items” basket average increased only $4 (1.3%). But it had increased another $11 (4.4%) by July 2021, yet another $23 (8.5%) by July 2022, and then another $10 (3.2%) by July 2023. All told, the CPI basket of “all items” is 18% more expensive than it was three-and-a-half years ago, at the beginning of the COVID-19 pandemic.
The picture doesn’t improve by considering the subcategories most visible to consumers. Food prices have increased 23.1% since March 2020 — even after a slow start — increasing 3.1% by January 2021, another 2.7% by July 2021, but then another 10.9% by July 2022, and another 4.9% by July 2023. Energy prices — even after declining considerably since last summer — have increased 42.7% since March 2020, increasing 2.9% by January 2021, another 19.3% by July 2021 (still seven months before Russia invaded Ukraine), and another 32.9% by July 2022 (they have since declined by 12.5%). Another painful category is shelter, where the rise in prices is actually still accelerating—rising by 1.1% from March 2020 to January 2021, then rising another 2.3% by July 2021, another 5.7% by July 2022, and another 7.7% by July 2023.
Obviously, an average household buys more in a given month than just the abstract CPI “basket.” The actual numbers in the basket do not reflect the actual cost for an average household. But some people have calculated what this actually costs households. Economist Mark Zandi, who generally argues the economy is in good shape, admitted last week, “the high inflation of the past 2+ years has done lots of economic damage. Due to the high inflation, the typical household spent $202 more in a July than they did a year ago to buy the same goods and services. And they spent $709 more than they did 2 years ago.”
Ordinary consumers feel the cumulative pain of these price increases. In the same CNN poll mentioned earlier, 71% of Americans changed their grocery list to stay within budget, 70% cut back on luxuries to afford necessities, and 48% dramatically reduced how much they drove. To them, Biden’s inflation victory lap sounds like this: “Aren’t you glad your monthly expenses only went up by $200 this year instead of $500?” They would probably be grateful, if they could ever figure out where they’re going to come up with an extra $700 per month.
The Verdict
“In case you haven’t noticed, inflation is down, too, and it’s going lower,” Biden asserted. This statement is partly true, partly false, and partly missing the point.
It’s fairest to judge Biden’s claim by his favorite metric, the percentage change in the CPI for “all items,” including food and energy. Based on that metric, inflation is not “going lower”; rather, it ticked up this past month.
Biden’s claim that “inflation is down” is either true or false, based on the answer to the question, compared to what? If compared to last summer, when annual inflation peaked at 8.9% in June 2022, inflation is down (to 3.2%) by nearly two-thirds. In that context, Biden’s statement is true. If compared to the rate at Biden’s inauguration, when annual inflation stood at 1.4% in January 2021, inflation is up more than double. In that context, Biden’s statement is false.
But in another sense, Biden’s claim is missing the point. Biden wants voters to “notice” that inflation is down, so they will politically reward him with a second term in office. But ordinary consumers don’t notice something as abstract as the percentage change in an artificially constructed macroeconomic metric. They notice that prices are high. Inflation going down means that prices are rising more slowly. But what voters want is for prices to go down.
Joshua Arnold is a senior writer at The Washington Stand.
