New York CNN Business
According to a recent analysis by White House economists, the United States has recovered faster than other countries from the historic bouts of inflation that squeezed families and soured the mood of the country.
The inflation rate is still higher than what economists and American families want. This is a major reason for President Joe Biden’s low approval ratings in the area of economy, as well as overall. The cost of living crisis is a global issue, and a lot of it is caused by things outside the control politicians. Factors like the pandemic in Africa, the conflict in Ukraine, and supply chain problems have pushed prices up around the globe.
The report of the Council of Economic Advisers, which was shared with CNN first, shows that the problem is worse in other large economies. The report shows that, when comparing apples to apples, the annual inflation rate in the United States peaked earlier and is lower than any other G7 nation.
The CEA was tasked with solving a long-standing problem for economists. How can they compare inflation across countries when there are so many differences in the way inflation is measured? The White House economists developed an apples-to apple inflation metric to address this problem. This metric makes adjustments for how shelter costs are factored into overall inflation.
This 'harmonised' inflation metric, compiled by CEA, finds that the annual US inflation peaked around 10% last summer at a time when gas prices were above $5 per gallon.
Inflation in the United States is below 3%, significantly lower than in any other G7 nation, including Canada, France Germany Italy Japan and United Kingdom. Japan and Canada are close behind at 4%. Around 8% is the level of exposure for both Italy and UK to Russia's invasion in Ukraine.
We are happy and encouraged to see that the trend is continuing in this direction,' said a CEA official during a telephone interview with CNN. I'm encouraged by this because it shows that we're making progress against inflation. It gives other countries hope.
The United States is not the only country that experiences inflation
It is understandable that some Americans are skeptical of a positive analysis of inflation crafted by White House, just as the presidential campaign for 2024 gets underway.
The official from the CEA said that the group is known for its deep-dive Twitter posts on major economic releases. This is true even when the data is bad. We pride ourselves in telling both the good and bad. Here's what we know about inflation in the United States: it is unquestionably lower.
The logic behind the analysis is supported by two independent economists who shared the CEA report on CNN.
Mark Zandi is the chief economist of Moody's Analytics. He was a former adviser for Republican John McCain's 2008 presidential campaign. Mark Zandi called the CEO report "well done" and the calculations used to harmonize the inflation rate'sensible.'
Zandi, speaking to CNN, said that the CEA analysis "clearly shows" the high inflation rate is a global problem. He cited the Covid-19 pandemic as well as the conflict in Ukraine.
Joe Brusuelas is the chief economist of consulting firm RSM. He described the CEA method as'solid' and 'impressive'.
Brusuelas stated that the report does not appear to be an 'attempt at shaping public expectations about inflation', but may also be an indirect message sent to the Federal Reserve to suggest it is time to make a final act' to the rate-hiking cycles.
High inflation tarnishes 'Bidenomics '
CEA's biggest adjustment to inflation is the way shelter costs are calculated. In the United States and Canada, inflation statistics include owners' equivalent rent. This is what it would be like to pay a homeowner based on current market rates and amenities. This can make up a significant portion of the monthly inflation statistics.
In Europe, officials do not include this type of inflation in housing costs. The CEA's apples to apples inflation metric does not include owners' equivalent rent but includes rental costs as well as the costs homeowners face for repairs.
These adjustments are not meant to capture the full cost of living for families but rather to compare inflation rates between countries.
The report on inflation comes just a day before Joe Biden's major speech describing his vision of the economy - dubbed "Bidenomics" - is due to be delivered. The White House's economic strategy is based on investments to lift the middle-class, rather than the Reaganomics tax cuts that trickle down for the wealthy as advocated by Republican ex-President Ronald Reagan.
The rub with "Bidenomics" is that the Biden years have been marred by a crushing inflation. Brian Moynihan, CEO of Bank of America, told CNN's Poppy Hardlow on Tuesday that it would likely take "all of this and all of next" before the Federal Reserve achieves its goal.
The job isn't done yet
Even CEA's analysis warns that inflation in the future is 'considerably uncertain' across the G7 nations including the US.
The high inflation rate is one of the main reasons Americans give President Obama a poor grade on the economy despite a historically low unemployment rate and a boom for clean energy and manufacturing.
Gallup found that only 35% of Americans have confidence in Biden's economic abilities. This is almost the same as the 2008 record low set by George W. Bush.
Wall Street bank Piper Sandler said that Biden's low approval ratings for the economy, and the shrinking inflation-adjusted wage were the main reasons why the president might 'get beaten' in the election of 2024.
Piper Sandler strategists warned clients in a Friday note that if Biden faces an opponent who is not Trump, the Democrats are at risk of being wiped out.
Even though inflation in Japan is higher than in Middle America, it may not be enough to comfort the average American voter who struggles with high costs of living.
"I would tell that family, this wasn't a singular problem. This does not lessen the pain that families experienced with rising prices. The CEA official stated that it was a very painful experience.
Officials acknowledged that, while inflation has cooled, there is still work to be done, particularly in relation to housing prices and used cars.
"There are still areas where we're very cautious. The official stated that the job was not yet done.