Inflation - Price of food, gas reverses fiscal gains

Price of food, gas reverses fiscal gains

Mark Mellman
The Hill.com
April 12, 2011

While Washington has been transfixed by budget deal-making, voters have been focused elsewhere, keeping worried watch over what they perceive to be a deteriorating economy — a perception fueled, importantly, by rising gas prices.

Acutely aware of the central electoral role of the economy, Democrats breathed an understandable sigh of relief when the Labor Department reported that over 200,000 jobs were created in March and unemployment edged down to 8.8 percent — down significantly from its 10.2 percent high in October 2009. With unemployment falling for four straight months and two consecutive months of 200,000-plus new jobs, many checked “the economy” box and were ready to move on. Not so the electorate, squeezed again by rising prices.

While prior to February real incomes had increased for seven months (the first sustained increase since early 2008), February was a downer, with consumers’ real, after inflation, purchasing power declining.

Energy and food prices were the prime culprits. Inflation in February increased at twice its January rate — with some three-quarters of that increase resulting from energy and food. Indeed, food costs jumped more than they had at any point in 36 years.

Americans are clearly feeling the pinch. The number believing the nation’s economy was doing “poor[ly]” had been on the decline since October of last year, according to Pew polling. In February, those harshly negative assessments jumped 11 points. Americans also regard “recovery” as a more remote goal. In early February, 42 percent told Pew pollsters that the economy would not recover “for a long time” — pessimism jumped 12 points this month.

Gallup too shows a significant decline in economic optimism. Its economic confidence index peaked in mid-February, but has dropped 12 points since then.

Even more dramatically, the University of Michigan’s highly regarded consumer confidence index suffered one of the largest monthly drops in its 60-year history. Just 11 percent expect inflation-adjusted income gains during the year ahead, barely above the all-time low of 8 percent in 1980. The proportion expecting the economy to improve over the coming year dropped to 21 percent in March, from 40 percent in February, the largest one-month decline in the history of the surveys.

While Republicans blame our straits almost exclusively on government spending, Americans rightly understand the central role of gas and food prices. Asked how much a variety of economic problems were impinging on their finances, the largest number of Americans told Pew that gas prices influenced their household finances “a lot” (69 percent), while 58 percent ascribed that level of significance to food and other consumer goods. A significant but meaningfully lesser 43 percent reported the federal deficit had a substantial impact on finances.

The word is clearly out, as 88 percent reported hearing “bad” news about gas prices and 59 percent heard negative news about food prices, while a smaller number (43 percent) heard bad news about jobs.

Americans’ pain at the pump produces muted cries of ecstasy from Big Oil. Even before the latest price spike, Exxon reported a 53 percent increase in profits at the end of last year, while Exxon and Chevron took honors as two of the three most profitable companies in the world. For voters, Big Oil remains a villain — by almost two to one, Americans express unfavorable rather than favorable views of these companies. Moreover, the alternative energy Republicans are so anxious to cut is precisely the cure most Americans prescribe for our costly energy woes.

After finally having begun to create jobs and consummating a budget agreement, Democrats, who thought they had turned the corner on the economy, can’t help but feel a little like Michael Corleone in “Godfather 3”: “Just when I thought I was out, they pull me back in.”

But elected officials who aren’t addressing the price squeeze aren’t meeting the American people where they live — and drive.

Mellman is president of The Mellman Group and has worked for Democratic candidates and causes since 1982. Current clients include the majority leader of the Senate and the Democratic whip in the House.

Former Clinton adviser Dick Morris predicted this over a year ago. He warned that inflation was around the corner because of the runaway spending by DC. He also said that it was going to kick in because of the feds pumping money that we don't have into the system. That's called printing money that the gov't has none of.

We'll all be billionaires!