White House confident on economy ahead of CPI report

Ahead of Thursday's inflation data, the White House is confident the economic recovery will continue, with sources highlighting recent analysis — including from Goldman Sachs — that inflation will remain transitory.

Why it matters: The monthly release of the Consumer Price Index will add fresh fodder to the debate about whether inflation will be short-term or part of a long-term, and dangerous, cycle. Republican critics are already seizing on the topic.

• They argue that President Biden's massive government spending is making everyday items more expensive.
• Over the weekend, Treasury Secretary Janet Yellen suggested, for the first time, inflation could reach 3% on a “year-over-year” basis, though she insisted it would be “transitory.”

Driving the news: For a growing number of economists, Yellen’s 3% figure may be underestimating the potential risk. And inflation may be higher, some warn.

• “After (Thursday's) number and the July number, we will very likely have already had 3% inflation in 2021,” said Larry Summers, a former Treasury secretary and National Economic Council director for President Obama. “Perhaps at that point, policymakers will be appropriately concerned.”
• "So far this year, inflation is running at a 6% rate,” said Jason Furman, a chair of the Council of Economic Advisers under Obama. “It is likely to moderate ... but likely to be above 3%, and 4% is completely plausible.”

Go deeper: Monthly CPI data measure price increases, both on a month-to-month and year-to-year basis. One month's numbers won't settle the debate about the endurance of recent inflation.

• For example, in April the cost of an airline ticket rose 10.2%, but that was compared to last April, when virtually no one was flying because of the pandemic lockdown.
• Some progressive economists have argued many recent CPI numbers are reflecting that prices are snapping back to their pre-pandemic levels.
• “Inflation data are particularly susceptible to cherry-picking,” said Austan Goolsbee, who also was a CEA chair under Obama. “Anyone can say, 'But what about the price of salami?' — or something — if it’s skyrocketing.”
• “The most critical thing about inflation is something that cannot be answered in one month’s number.”

What they are saying: The most accurate forecasters “assign only a 7% chance that inflation will be high next year,” former Office of Management and Budget director Peter Orszag wrote in an article the White House highlighted.

• Goldman Sachs has written that "there are strong reasons to believe the inflation pickup will … remain transitory."
• After factoring in Biden’s economic and vaccination plans, the World Bank has estimated U.S. GDP growth at 6.8 % — nearly double its last estimate of 3.5%.

The other side: “Higher recent inflation readings in consumer prices are a cause for concern," wrote Glenn Hubbard, former CEA chair under President Bush.

• “I am more worried now than I was two months ago,” said Doug Holtz-Eakin, the president of the American Action Forum and former director of the Congressional Budget Office. “So far, we haven’t seen core inflation move up sharply, but that’s coming.”