Inflation and Presidential politics - This May Surprise You

Inflation has been at the forefront of this year’s presidential election. The narrative has been that the Trump years were halcyon for inflation and the Biden years have been a disaster.

The reality is more complicated. The truth is that Trump’s inflation was no better than it was during the Obama administration and likely both periods were impacted by circumstances beyond their control: Global Financial Crisis, global deflation and negative interest rates and Covid. See charts below.

The recent inflation surge was largely global and a direct result of the global post Covid supply chain and pent up demand transition and Russia’s invasion of Ukraine. While Covid stimulus packages under both Biden and Trump certainty provided grist for the inflation mill it's not clear that the Biden stimulus itself triggered a step change in inflation.

The two charts below illustrate two critical points: Trump inherited a benign inflationary environment from Obama and the US post Covid inflation was actually more benign than other peer regions such as the UK and EU.

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Does policy impact inflation? Yes and no. Biden’s Inflation Reduction Act can’t really be given much credit for the recent inflation decline. On the other hand, energy policy can have a short-term impact on inflation. An over-dependence on fossil fuels or too radical a transition to clean energy can both impact inflation.

Re: energy policy, Biden’s controversial decision to release 1 million barrels of oil per day in 2022 from the Strategic Petroleum Reserve likely had a more consequential impact on inflation. Likewise, the Biden FTC’s activist focus on anti-trust issues could have a positive inflation impact. For example, the baby formula shortage of 2022 was partly the result of the 98% concentration among the top three suppliers.

On the other hand, most economists would argue that Trump’s radical tariff policy plan WILL BE inflationary. I watched a live debate recently with Trump advisor and conservative economist Stephen Moore and Reagan Budget czar David Stockman and both expressed concern about the impact of a Tariff war.   

The bottom line – the recent inflation, as painful as it was, is overrated as a critical presidential issue. And to the extent politics does influence inflation, in my view there isn’t a clear winning candidate with respect to inflation.