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Headache for Biden as Key Inflation Index Rises to 40-Year High

Following the second consecutive negative gross domestic product (GDP) reading, there is further bad news for the Biden administration on Friday as an integral way of measuring inflation rose to some other high.

Inflation is Biden’s “top economic priority,” because the president remarked in June, and earlier this week he urged his colleagues to pass the Inflation Reduction Act, which he called “the strongest bill it is possible to pass to lessen inflation, slice the deficit, reduce healthcare costs, tackle the climate crises and promote energy security.”

As the cost of living is really a high item of concern, a July 28 Suffolk University/USA Today poll showed that “Abortion” is really a higher priority for voters than “Inflation” by way of a 15 percent to 10 percent response rate. “Economy” was top, with 20 percent.

However, a CNN poll published earlier this month showed that nearly three-quarters of Americans (74 percent) disapprove of how Biden is tackling inflation, weighed against 25 percent who approve.

Grocery shopping prices
President Joe Biden has said that inflation may be the “top economic priority” for his administration. Above, a person shops in a Kroger supermarket on July 15, 2022, in Houston, Texas. Getty Images

The PCE (Personal Consumption Expenditures) price index was 6.8 percent for June, up from 6.3 percent in-may. As a way of measuring inflation, the PCE index is leaner than Consumer Price Index (CPI), which came in at 9.1 percent in June.

The final time the PCE price index was 6.8 percent or more was in January 1982, when it had been 6.9 percent.

Analysts have been expecting year-on-year PCE to be 6.7 percent, in accordance with data provider Trading Economics. The Federal Reserve Bank of Cleveland’s nowcasting style of inflation had PCE at 6.77 percent, and core PCE at 4.69 percent.

For the American public, it could seem unhelpful to possess two different measures of inflation, particularly if they go in various directions or aren’t particularly close in number. However, both are in historically high levels, and both show how individuals are being suffering from inflation.

In 2012, the Federal Open Market Committee (FOMC) adopted PCE as its primary way of measuring inflation. Based on the Federal Reserve, “The FOMC uses the PCE price index largely since it covers an array of household spending. However, the Fed closely tracks other inflation measures aswell, like the consumer price indexes and producer price indexes issued by the Department of Labor.”

In addition to being more comprehensive, PCE is more flexible since it adjusts the basket weighting as people substitute more costly products for less costly alternatives. In addition, it has more flexibility to create historical revisions. Overall, PCE sometimes appears as more accurate, considering that it isn’t reliant on consumer surveys like CPI and instead uses trade association data along with other sources.

Another facet of PCE that’s important may be the “core” measure that excludes food and energy. That index had dropped since February, going from 5.3 percent to 4.7 percent in-may, but is currently 4.8 percent in June. Although food and energy constitute a large section of household spending, this way of measuring core inflation helps the Fed understand broader trends in inflation.

Michael Pearce, Senior U.S. Economist at Capital Economics, said in an email to Newsweek that: “Regardless of the levelling off and softening in a few labour market indicators, the continued strength of wage growth helps it be hard for the Fed to claim “clear and convincing” evidence that inflation is falling. We expect which will push officials to keep raising interest levels into restrictive territory on the coming months.”

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