President Biden continued his war of words with U.S. businesses on Thursday by repeating his misleading claim that corporations that have not lowered prices while inflation has fallen are engaged in “price gouging.”
Rejecting the view of most economists on both the left and the right, Biden said in a tweet that companies should be lowering prices because the rate of inflation has come down this year.
Let me be clear to any corporation that hasn’t brought their prices back down even as inflation has come down: It’s time to stop the price gouging.
— Joe Biden (@JoeBiden) November 30, 2023
Give American consumers a break.
Nearly two hours earlier, the Department of Commerce released its monthly report on the personal-consumption expenditure (PCE) price index, a key measure of consumer prices that the Federal Reserve uses to gauge its two percent inflation target. This report showed that consumer prices were up three percent over twelve months and core prices, which exclude volatile food and energy prices, were up 3.5 percent.
Inflation as measured by the personal-consumption expenditure price index peaked at 7.1 percent in June of last year. Prior to Biden’s tenure in the White House, the year over year rate of PCE inflation had not reached three percent since the third year of the Obama administration. Inflation has been above three percent for 31 consecutive months, the longest streak of high inflation since the late 1980s.
Biden’s claim is misleading. A decline in the rate of inflation is not typically an indication that prices are falling. A positive rate of inflation means prices are rising. When inflation falls, this means the pace of price hikes have slowed. Thursday’s PCE price index indicates that the general price level has risen by three percent compared with a year ago.
Compared with the previous month, the general price level rose by just 0.05 percent, according the the PCE price index. While some prices rose and some fell during the month, as they do in most months, the overall price level is still rising.
Without offering evidence, Biden said that companies that had not lowered their prices were engaging in “price gouging,” a term typically reserved for merchants that hike prices when demand surges due to a sudden calamity such as a blizzard or hurricane. Often this is illegal under local laws when done in the context of officially declared emergencies.
Biden’s tweet repeated a claim made Monday in a speech touting his administration’s efforts to improve U.S. supply chains. The Biden administration has been struggling to stem the slide of public approval, particularly on economic matters, adopting increasingly aggressive rhetoric often at odds with widely accepted economic views.
In an essay published Wednesday, Atlanta Fed chief Raphael Bostic explained the mainstream view, perhaps in a subtle rebuke to the president.
“Before I conclude, I want to clarify that a declining inflation rate does not mean prices actually fall. What we are experiencing is called disinflation. When prices on average decline, that’s deflation,” Bostic said. “Deflation might sound appealing. After all, who wouldn’t want to pay less for groceries next week? But it can be economically destructive. Consumers may delay purchases because they expect prices will keep falling. That can curtail overall consumption, which can prompt businesses to cut production, which in turn can mean lower profits, cost cutting, and layoffs.”
