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This Is Vladimir Putin’s Inflation Number, Not Joe Biden’s

The stock market understands that the current spike in consumer prices is war-related. Why can’t Chris Cillizza?

Spencer Platt/Getty Images

It’s not at all clear that people care why everything they are trying to buy costs more. All they know is that gas prices are through the roof—although they are lower this week than last—and everything they want or need to buy costs more (a lot more) than it did a year ago.

—“Inflation Is Crushing Joe Biden and the Democrats,” Chris Cillizza, CNN, April 12

The stock market rose Tuesday morning on news that inflation reached 8.5 percent in March on an annualized basis, the biggest jump since 1981. How can that be when CNN’s Chris Cillizza is telling us the inflation news is catastrophically bad?

It’s not my usual habit to interpret the madness of crowds, either in the financial markets or at the voting booth. But I think what’s going on is that people are well aware that Russia, which supplies roughly 10 percent of the world’s oil, invaded Ukraine in late February and that, as a result, the March inflation number was always going to be bad. Just in case anybody didn’t know, White House press secretary Jennifer Psaki warned Monday that the inflation numbers would likely be “extraordinarily elevated” because of what she called “Putin’s price hike.” 

When you rip off a Band-Aid, fearful anticipation is always going to exceed pain.

But there’s another reason the stock market didn’t tank (or rather, didn’t tank until later in the day, for reasons I don’t pretend to know). The new inflation numbers from the Bureau of Labor Statistics suggest that the Covid-driven reason inflation rose in the first place—disruption in the supply chain that boosted prices for goods—is starting to ease. “Goods prices,” wrote Dean Baker, senior economist at the Center for Economic and Policy Research, 

excluding food and energy, fell 0.4 percent in March.… This is potentially a very big deal.… This category was at the heart of the supply chain story.  The price of many of these items [was] driven up by shortages and shipping bottlenecks, not production costs. The drop indicates problems are getting resolved. 

TV prices, Baker noted, are down 1.5 percent since last year, “fully reversing” a “sharp run-up last spring-summer,” and the price of car parts dipped between February and March. At the very least there was, as Craig Erlam, senior market analyst at the brokerage firm Oanda, told The Wall Street Journal, “a lack of significant upside surprise in the data,” which may signal to the market that inflation “may be plateauing.” 

Given Putin’s insane determination to continue pummeling Ukraine, any such optimism strikes me as premature. But another reason for optimism, following the rococo reasoning of Wall Street, is that the new inflation number is so obviously bad that the Federal Reserve will have to move more aggressively against inflation, even at the risk of putting the economy in recession. Also, as Jason Furman noted on Twitter, “core services” (italics mine) are rising slightly, indicating a manageable recovery in the Covid-depressed service sector: restaurants, hotels, and so on.

In summary: We’re seeing some glimmering of hope that Covid will stop wrecking the economy. The bad news is that it’s the Ukraine war now that’s wrecking the economy. 

There is a special place in hell for Republican war hawks who bitch about runaway inflation. On Sunday, House Minority Leader Kevin McCarthy said on Fox News, “Biden acted too slow” on Ukraine. “What we really need to do,” he said, “is supply Ukraine with the weapons they need to win this war.” Two days later, when the BLS inflation numbers were released, McCarthy tweeted: “Runaway inflation is crushing American families and our economy. Under President Biden, prices are accelerating faster than any time in more than 40 years, sucking up paychecks and draining savings. Americans can’t afford Democrat one-party rule.”

As I wrote in January, you can be a war hawk or you can be an inflation hawk. You can’t logically be both, because the Ukraine war is intrinsically inflationary. It’s pushing up gas prices. It’s pushing up grain prices. McCarthy understands this. He’s hoping you don’t.

McCarthy’s motivation is obviously partisan. It’s hard to know what motivates the more cynical members of the political press. The Chris Cillizzas of this world believe that voters are too feebleminded to grasp what’s driving inflation and that it’s bad manners to educate them. “The problem for Biden (and his party),” Cillizza wrote Tuesday, is that people probably don’t care why prices are going up, they’re just annoyed that it’s happening (see epigraph, above).

Now, that is, at some level unfair. It is very difficult for the president of the United States to deal with rising inflation—particularly given the ongoing international crisis occasioned by Russia’s ongoing invasion of Ukraine.… Tuesday’s [consumer price index] report is a major dark cloud on the political horizon for Democrats. And there’s no obvious way to solve the problem between now and November.

Really? You can’t think of any way at all? Don’t you make your living by reporting the news?

It seems to me that Cillizza’s confident belief that ordinary people are unable or unwilling to understand how world affairs affect gas prices is much likelier to piss off the masses than any attempt to make them understand. Especially when the explanation isn’t all that complicated. Oil prices are up because the Ukraine war is disrupting sales from the world’s third-largest producer, Russia. The stock market, which has never impressed me with its vast intelligence, understood that Tuesday morning. By Tuesday afternoon it had other ideas, and stock prices fell. Maybe the market was watching CNN.