Yes, inflation is down. No, the law to reduce inflation does not deserve credit
WASHINGTON (AP) — Even President Joe Biden has some regrets about the name of the Inflation Reduction Act: As the first giant law went into effect Wednesday, it’s increasingly clear that immediately reining in prices wasn’t the point.
While price increases have eased over the past year – the Inflation rate It fell from 9% to 3.2% – most economists say very little of the drop came from the law.
“I can’t think of any mechanism by which to bring down inflation yet,” said Jason Furman, a Harvard economist, adding that the law could eventually help lower electricity bills.
Alex Arnon, an economics and budget analyst at Ben Wharton’s Budget Model at the University of Pennsylvania, makes a similar assessment.
“We can say with strong confidence that it was mostly other factors that led to lower inflation,” he said. ‘The IRA wasn’t just an important factor.”
That shouldn’t come as a surprise.
when Inflation Reduction Act It was suggested, and Congressional Budget Office He said that its impact on inflation will be “Slim.”
Why the name? It may ultimately help keep prices lower in the future – and is convenient for the politics of the moment.
The law was proposed shortly after the American public learned that consumer prices were skyrocketing at the fastest pace in four decades. Democratic Sen. Joe Manchin of West Virginia and Senate Majority Leader Chuck Schumer of New York had private conversations about Biden’s agenda and floated the name of the Inflation Reduction Act once a deal is reached. Biden pledged at the time that he would “reduce inflationary pressures.”
The law is now at the center of Biden’s rhetoric to voters involved in the 2024 presidential campaign. But with inflation being less of a concern, the president is putting more emphasis on his target rulings. combating climate changecreating jobs and lowering people’s health care bills.
“I wish I didn’t call it that because it’s not so much about reducing inflation as it is about providing alternatives that generate economic growth,” Biden He said Thursday at a fundraiser in Utah, adding that he still believes that with the law “we’re effectively lowering the cost for people to be able to meet their basic needs.”
While the law may not have curbed inflation over the past year, it could do more in this regard in the future, as it is now beginning to be implemented. Besides the CHIPS Act, there are also signs that the Inflation Reduction Act helped spur the nearly $500 billion in corporate advertising to invest in new plants. This has helped boost the labor market despite efforts to reduce inflation, which many economists believe will push the United States into recession. This recession – as Biden predicted – did not materialize.
Although the law did not immediately curb inflation, it appears to have done little to cause prices to rise dramatically as the Republicans had claimed. Speaker of the House Kevin McCarthyR-Calif., said last August that Biden’s agenda would push inflation higher, only to have the rate drop over the past year.
“They’re going to push inflation even higher,” McCarthy told Fox News in an interview. They will spend more money, which is what brought us to this problem. “
Biden, in his three-state western tour last week, assured donors and voters how the law addresses climate change and boosts job creation as the economy moves toward renewable energy.
“It has nothing to do with inflation,” Biden said at a fundraiser in New Mexico. “It’s about $368 billion, and it’s the single largest investment in climate change anywhere in the world, anywhere. Nobody’s spent that before. And it’s starting to take hold.”
If it wasn’t the IRA that deserved the credit, what caused inflation to plummet?
Economists list three main reasons:
Oil and gasoline prices are down from last year’s peak. Gas prices increased by 60% in June 2022 compared to the previous year, due to the Russian invasion of Ukraine. But gas prices fell steadily until last January, when they began to climb without returning to their previous peak.
– The Fed aggressively raised its benchmark interest rate, making it more expensive to borrow and slowing demand that was driving up prices. The Federal Reserve’s rapid increases have nearly doubled average mortgage rates, driving down existing home sales. Home prices also fell slightly last year, which could put downward pressure on rental costs. Other interest rate-sensitive industries, especially automobiles, have also seen prices fall after sharp increases during the pandemic.
The supply chain faults that caused the shortages caused by the pandemic have become uncontrolled. scale for supply chain difficulties Established by the Federal Reserve Bank of New York have fallen below pre-pandemic levels as shipping costs have fallen.
Republican lawmakers and some economists blamed high inflation last year on the $1.9 trillion pandemic relief that the administration presented as excessive, yet any effect of that on inflation now appears to have diminished.
“Big moves in inflation are basically global shocks,” said Christine Forbes, an MIT economist and former member of the Bank of England’s rate-setting committee. “Those are the primary drivers, but not the only ones. What the Fed did has contributed as well, without a doubt.”
Biden administration officials said their actions contributed to lower inflation. They say that by releasing oil from the US Strategic Reserve they have lessened the gas pump’s financial hardship. The administration also created a task force to improve US port activity and supply chains. The White House has also been silent about rate hikes by the Fed, giving the central bank the independence to act without political pressure.
Biden has been careful not to declare an outright victory against inflation, as it remains above the Fed’s 2% target. But the White House says the cost savings from the inflation-lowering law come with the enactment of the law.
The tax credits will reduce the cost of installing rooftop solar panels by 30%, which in turn will lower your monthly electricity bills. The tax credits also make it less expensive to install a home central air control heat pump, which can cut energy bills by $1,000 annually. There are other tax credits for energy efficient doors and windows as well as new insulation.
Electric utilities that use the renewable energy tax credits will deliver nearly $8.2 billion in savings to their customers. People can afford to buy a new electric car with a $7,500 tax credit.
The law also contains measures related to health care. Biden has often said in his speeches that Medicare recipients will get the monthly cost of insulin up to $35. From 2025, there will be a $2,000 cap on out-of-pocket prescription drugs that will save 19 million people on Medicare by an average of $400 annually. CBO estimated People who are enrolled in Medicare Part D, which includes prescription drugs, will have their out-of-pocket costs reduced by $25 billion in 2031.
Taken together, the law could help protect the US economy from rising oil costs and the disrupted supply chains that have caused the latest bout of soaring inflation.
“The IRA calculation will be a big plus for the economy in the long run because it reduces the economy’s dependence on fossil fuels,” said Mark Zandi, chief economist at Moody’s Analytics. “It will make the economy less vulnerable to higher oil prices, which have contributed to nearly every recession since World War II.”
Associated Press writers Christopher Rugaber and Fatima Hussain contributed to this report.
This article originally appeared on apnews.com