By Natalie DeCoste
The White House’s Office of Management and Budget (OMB) released its latest numbers related to inflation, and the news was anything but good for consumers.
The OMB expects consumer prices to rise 4.8% in the fourth quarter from a year earlier. The new predictions are a sharp increase from the 2% rise that the Biden administration forecasted in May when Republicans and some economists called out Biden’s $6 trillion spending plan.
“The rate of inflation over the first two quarters of 2021 has been elevated amid temporary pandemic-related factors. Consistent with external forecasters, MSR projections include (fourth-quarter-over fourth-quarter) CPI-U inflation of 4.8 percent in 2021 and 2.5 percent in 2022, before reaching a long-run rate of 2.3 percent over the remainder of the Budget window,” read the mid-session budget review for the 2022 fiscal year.
The increase to the White House’s prediction brings the numbers in line with the Federal Reserve forecast for inflation. Both entities expect to see inflationary pressure easing rapidly next year, dropping to 2.5% by the fourth quarter of 2022 and 2.3% by 2023.
“We think this trajectory is very much consistent with the inflation outlook we’ve been discussing pretty much since we got here,” one White House official said on a call with reporters.
The report attributes some of the problems surrounding inflation to the progression of economic recovery during the pandemic and several pandemic-related supply-side issues. According to the report, a combination of extreme weather events, shipping delays, backlogs at ports, and other pandemic-related supply-side factors have led to shortages of key production inputs such as microchips, lumber, and other items.
The impact of all of these shortages and factors can be seen in recent core Consumer Price Index (CPI) inflation, for which approximately 60% of the 0.9% (month-over-month) increase in June 2021 can be attributed to increases in various forms of (microchip-intensive) motor vehicles.
While inflation is certainly up, some numbers seem to suggest that inflation pressures may have begun easing up even in their elevated state. According to the Federal Reserve’s preferred inflation gauge, consumer prices rose 0.4% last month, marginally lower than the prior month’s 0.5% gain. Still, compared with a year ago, overall prices rose 4.2%.
Other information from the White House mid-session budget review shows that the administration increased its estimate of annual economic growth to 7.2% this year. That is up from May’s projection of 5%.
Additionally, the White House estimated that the deficit for fiscal year 2021 will be $3.1 trillion. That is a reduction of $555 billion from the earlier estimate of nearly $3.7 trillion. The measure of the deficit as a share of the economy also decreased, dropping to an estimated 13.9%, down from a previous forecast of 16.7%.