Energy and food prices can be volatile and therefore many economists focus on the “core” rate of inflation which excludes these items. But even that showed a rate of 6.5%, about 25% lower than the overall rate.
So how can Biden make this claim? Many readers were eager for an answer – especially as some people on Twitter truncated his comment to be omitted “due to the impact on oil prices”, which makes it particularly absurd.
Let’s dig in the weeds. Turns out it doesn’t refer to the headline inflation figure.
The individual elements of the CPI report make for grim reading. Meat, poultry, fish and eggs increased by 13.7% from March 2021 to March 2022, used cars and trucks increased by 35.3%, air fares increased by 23.6% , butter jumped 12.5%, coffee rose 11.2% and clothing rose 6.8%.
Gasoline prices rose 48%, while overall energy prices rose 32%.
Energy is only 7.547% of the CPI basket of goods, so even with this big jump, how does Biden get to 70%?
Without saying it directly, it refers to the monthly variation in prices, and not to the annual variation.
Let’s go through the calculations, using the monthly numbers.
Prices rose 1.2% from February to March. (This translates to an annual rate of 15.9%.) Now let’s express this increase in basis points, or one hundredth of 1 percentage point. So a jump of 1.2% would be 120 basis points.
Energy prices rose 11% last month. Since energy represents 7.547% of the basket, we multiply this figure by 11. This gives us 83 basis points. This is then divided by the total number of 120 basis points (83/120), resulting in 69.1%. In other words, that’s how much energy prices contributed to the monthly increase. Biden rounded that number up to 70%.
The White House Council of Economic Advisers made a similar calculation in a tweet it was released on April 12, after the report was released.
How did Biden implement this line in his remarks? He said: “Putin’s invasion of Ukraine has driven up gasoline and food prices around the world. Ukraine and Russia are the one and two largest wheat producers in the world. We are three. They are closed. We saw it in yesterday’s inflation data.
Many people might believe that the president was referring to the headline annual inflation report figure – 8.5% – and that Biden was saying that 70% of this digit due to an increase in energy costs. We certainly did when we first heard that line. But if energy prices hadn’t risen at all in March, the 12-month price increase would still have been 7.6%.
A White House official pointed to the CEA tweet as an explanation for Biden’s comment, saying it should have been clear he was only referring to one month’s data because it wouldn’t make sense to claim that he war that started less than two months ago was responsible for a year’s worth of inflation. He noted that White House press secretary Jen Psaki earlier in the week referred to one-month data: “While energy accounted for 70% of monthly inflation in March on CPI data, it accounted for a substantial part of the PPI. [Producer Price Index] inflation too,” she told reporters on Wednesday.
Another way to look at it: excluding the increase in energy prices from last month’s 1.2% increase still translates to an annual rate of nearly 5% per year. (That’s 31% of an annual rate of 15.9%.) That can’t be blamed on the Russian invasion — and we highly doubt Biden would have thought such a high inflation rate would have been acceptable. one year ago.
This is one of those clever talking points that gets in the way when testing Pinocchio. Biden’s calculations are defensible, particularly because his full quote — not the truncated one circulating on Twitter — refers specifically to the impact of oil prices.
But at the same time, ordinary people would certainly have assumed that he was referring to the 12-month inflation rate, not the one-month figure. Moreover, even without taking into account energy costs, the inflation figure is relatively high. Most Americans care about the rate of inflation for the past year, not the past month.
We went back and forth on whether a certain level of Pinocchios was warranted. We were tempted to award Two Pinocchios, basically half true. We would certainly be more comfortable if Biden had referred specifically to the monthly inflation numbers. But he was referring to the invasion that started 50 days ago. So we’ll leave that without rating and let the readers decide for themselves.
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