President Joe Biden’s proposed budget for the coming year uses an inflation estimate that even the White House admits is unrealistically low.
The budget released Monday assumes a 4.7 percent increase in consumer prices this year and 2.3 percent next year.
Economists polled by Bloomberg forecast 6.2 percent this year and 2.6 percent next year. Even those numbers may be too low. In its latest release, the Consumer Price Index was up 7.9 percent compared with a year ago and is likely still accelerating. Regional Federal Reserve bank surveys, such as the Dallas Fed’s manufacturing survey released this morning, indicate that inflationary pressures are climbing rather than retreating. The Atlanta Fed’s survey of business expectations for inflation moved to a new high in March.
Cecilia Rouse, who chairs the White House Council of Economic Advisers, said the budget plan was based on assumptions and forecasts locked in place back in November. This serves to highlight just how badly off the mark the White House was on inflation last year. Rouse was one of the most prominent cheerleaders for the Federal Reserve’s misguided insistence that inflation would turn out to be merely transitory. As recently as December, she was predicting that inflation would come down to around three percent by the end of this year.
On Monday, Rouse predicted that inflation would ease over the coming year, although she had to admit that any forecast was clouded by “tremendous uncertainty.” Given how far off she was last year, there’s little reason to have confidence in this forecast. Indeed, the White House undermines its credibility here by projecting that the economy will expand 3.8 percent this year, a full percentage point higher than the Fed’s projection of 2.8 percent and two points higher than the Fed’s estimate of long-term potential growth. If the economy is running that hot, there’s no way that inflation gets cut in half.