REHOBOTH BEACH, Del. — While motorcading to his beach house last weekend, President Joe Biden could have looked out the window of his limousine and seen firsthand why he has struggled to contain inflation.
Lining Delaware’s Coastal Highway as it leads into Rehoboth Beach are miles of strip malls, outlet stores, restaurants, hotels and gas stations. The advertised price of gasoline was approaching $5 a gallon. Vacationgoers had packed into the parking lots of pubs and taquerias.
No one is happy that inflation is close to a 40-year high, but it will be hard to bring down prices so long as people keep eagerly spending.
Browsing the Polo Ralph Lauren factory store, Nina Cooper was displeased about her rising expenses yet she was still shopping for new outfits. Inflation was not enough to deter the hospital worker, who was grateful that a seven-minute commute spared her some pain at the gas pump.
“Everything is going up — look at these prices,” Copper said. “But you still got to live.”
Biden faces a delicate trade-off as he tries to help his fellow Democrats in the November elections. He needs U.S. consumers to pull back just enough so inflation eases, but not so much that the economy risks plunging into a recession.
The president has flicked at this idea in recent speeches, noting that the pace of hiring has slowed and “we’re beginning a shift to steady growth” after a rapid recovery from the coronavirus-induced recession. That recovery that was fueled, in part, by his $1.9 trillion relief package.
Consumers account for most U.S. economic activity, meaning they steer much of what happens with their collective choices. Their role tends to get overlooked in political speeches, which generally reduce the economy to talk about jobs, factories and other forms of production. Biden has gone so far as to say that his policies to promote port upgrades and domestic manufacturing will lower costs by improving production, a long-term fix to an immediate problem that can be reduced, simply, to demand exceeding supply.
Friday’s report on consumer prices is expected to show that annual inflation slowed ever so slightly to 8.2% in May from 8.3% in April. Economists surveyed by FactSet indicate the decline will largely be driven by expenses other than food and energy, as Russia’s invasion of Ukraine has led to higher prices in those categories worldwide.
Republicans are tapping into the public impatience with inflation remaining persistently high, instead of dropping as promised when the economy reopened after pandemic-related closures.
Senate Republican leader Mitch McConnell of Kentucky has attacked higher electricity and gas prices as ultimately the result of an ideological choice by the Biden administration to move away from fossil fuels. The GOP solution is to embrace policies that it believes would increase energy supplies.
“A few days ago, President Biden said soaring gas prices were just part of ‘an incredible transition’ that will leave us ‘less reliant on fossil fuels,'” McConnell said Tuesday in the Senate. “Did you hear that, American workers? Democrats say your financial pain is the necessary cost to make America more to the liking of the radical environmental left.”
Part of the problem with inflation is that consumers have yet to significantly cut back. AAA reported that average prices at the pump have jumped 62% from a year ago. But the Energy Department reported that gasoline usage in the U.S. has only fallen 1.8% over the past year, meaning that most consumers are accepting the financial burden imposed by inflation.
University of Michigan economist Betsey Stevenson, a former adviser to the Obama White House, said it would be helpful if Americans reduced their spending. This would lessen demand and allow supplies to catch up, easing pressure on the Federal Reserve to lower inflation through higher short-term interest rates.
“Fundamentally, the problem right now is the opposite of stagflation — it’s regular inflation driven by an economy operating at or even above its potential, with consumer demand outstripping the capacity of the economy,” Stevenson said. “I’m hoping that people stop digging into their savings and cut spending a little — not enough to slow the economy, but enough to slow the price increases.”
Stevenson also acknowledged that gas prices in particular might be driving the broader dissatisfaction, such that overall inflation could fall and do little to calm public anxieties so long as prices at the pump are high.
“Cars seem to be important to people’s sense of control and high gas prices for some might feel like losing your ability to just hop in your car and go where you want,” she said.
Despite the spike in prices, consumer spending increased faster than inflation during the first four months of this year. Whether consumers can maintain such robust spending will largely determine how the economy fares in the coming months.
There were visible signs that Rehoboth Beach’s economy is zipping along.
Hotel rooms at discount chains off the crowded highway were charging $250 a night on the weekends. There are shortages of summer workers as retailers are openly advertising jobs, a sign that prices might need to rise further to cover labor costs.
Tanger Factory Outlet Centers, which owns the outlets along the highway, reported to investors that sales are up 18.1% from pre-pandemic levels. Tanger CEO Stephen Yalof told investors on an earnings call last month that shoppers have returned “even as consumers face higher gas prices and an inflationary environment” and that he is confident that at his outlet “retailers will be able to weather and perform well” if a downturn occurs.
Carrie Lingo, a real estate agent who is chairwoman of the board of the Rehoboth Beach-Dewey Beach Chamber of Commerce, said she has yet to see much of a slowdown caused by inflation. Their biggest obstacle is the absence of workers, not the prospect of lower sales.
Hiring usually swells during the summer with the tourists and pay was already up last year. Average weekly wages in the surrounding Sussex County were 12% higher during last year’s summer peak than in 2020, according to the Bureau of Labor Statistics.
“Our visitation is up from last year but there are supply shortages,” she said. “I think the companies are adjusting well and many times those prices are passed along to our consumers.”
AP Economics Writer Christopher Rugaber in Washington contributed to this report.
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