The White House is sending mixed messages on the United States’s post-pandemic inflationary run, with quiet signals suggesting the period might last years longer than administration officials have publicly indicated.
The Consumer Price Index report for May published by the Bureau of Labor Statistics showed that year-over-year inflation jumped 5.4%, marking three straight months of increases and the single-largest increase since the Great Recession of 2008.
Still, the White House’s Council of Economic Advisers noted roughly 60% of that increase could be attributed to auto industry demand, exacerbated by severe semiconductor shortages.
The Biden administration previously identified semiconductors as one of four areas with major supply chain deficiencies. Yet, Sameera Fazili, deputy director of Biden’s National Economic Council, told reporters in June inflation caused by semiconductor supply chain issues would not last long.
“We fully expect these bottlenecks to be temporary in nature and to resolve themselves over the next few weeks,” she said. “These are good problems to be having. Demand came back much quicker than even companies expected.”
NEC Director Brian Deese similarly said in a speech the White House is “hearing from industry participants that you should expect some improvement sequentially over the second half of this year.”
He added that “the long-term answer to this issue” is large-scale investments in domestic semiconductor production, such as the $50 billion investment President Joe Biden pledged in June.
Still, a semiconductor engineer at Intel — the world’s largest semiconductor producer in terms of total sales in Q1 of 2021 — told the Washington Examiner it would likely take at least a year for production to meet post-pandemic auto demands.
According to the engineer, who has “visibility” on the company’s overall semiconductor production and was granted anonymity by the Washington Examiner to speak freely on the issue, Intel missed its commitments for Q2 by “some percentage” and is currently anticipating a “short miss” for Q3.
“We don’t have a clear plan of resolving that,” the engineer continued. “Demand is so high.”
The engineer added that even the $20 billion new semiconductor manufacturing facilities Intel began building in Arizona this past spring won’t alleviate the problem anytime soon.
“We’re building this big fab we announced in Arizona. That’s going to add a couple million square feet to our fab there, and we’re constantly building in Oregon. But, I think the timeline to be getting new tools on to expand our capacity is a couple of quarters,” the engineer explained. “So, I would say our capacity isn’t probably going to be able to meet customers’ demand for something like a year to two years.”
That two-year time frame appears to match the total inflationary period lifespan hinted at in a recent white paper quietly published by CEA Chairwoman Cecilia Rouse and economists Jeffery Zhang and Ernie Tedeschi on July 6.
The article titled “Historical Parallels to Today’s Inflationary Episode” that, unlike many administration publications, was not disseminated through the White House’s press lists, suggests the past inflationary period that most resembles our current run is the nearly three-year episode that followed World War II.
The article does note that “no single historical episode is a perfect template for current events” but did eventually conclude that “the inflationary period after World War II is likely a better comparison for the current economic situation than the 1970s and suggests that inflation could quickly decline once supply chains are fully online and pent-up demand levels off.”
The White House sent a much more visible signal on inflation Tuesday when former Treasury Secretary Larry Summers met with Deese and Rouse at the White House.
Scoop: Former Treasury Secretary Larry Summers was at the White House today meeting with top economic advisers Brian Deese and Cecilia Rouse. He’s been raising alarms about inflation for months and visit came on the day when surging June inflation numbers were reported.
— Jennifer Epstein (@jeneps) July 13, 2021
Summers has heartily criticized much of Biden’s legislative agenda, including the $1.9 trillion American Rescue Plan and both of his infrastructure proposals. He argues those spending levels, coupled with the Federal Reserve Board’s maintained zero-percent interest rates, will bring on rampant inflation.
The White House previously shrugged off his critiques.
Jason Furman, former CEA chairman for former President Barack Obama, spelled out a massive inflation warning on Twitter by noting a “massive divergence of inflation between the U.S. and Euro area right now.”
Furman admitted part of the gap could be accounted for the different rates the U.S. and Eurozone reopened but claimed the phenomenon “says a lot more is going on than just pandemic-related shortages and quirks.”
A MASSIVE divergence of inflation between the US and Euro area right now. I’m showing the 24-month change in core CPI (annualized) because this avoids any base effects.
Part of this is the US opening sooner/faster, but likely only part. pic.twitter.com/VkScwF7RV8
— Jason Furman (@jasonfurman) July 13, 2021
And yes, as I’ve said before, inflation is too low in the euro area. They’re not doing nearly enough to recover.
— Jason Furman (@jasonfurman) July 13, 2021
White House officials, pressed on the subject by the Washington Examiner, noted that Summers’s Tuesday meeting at the White House focused on the infrastructure negotiations and Biden’s Build Back Better economic agenda. However, they did not comment directly on any shifting views on inflation within the administration.
Intel’s corporate communications team did not respond to requests for comment on the subject from the Washington Examiner by press time.
It’s also worth noting no reporters present at Wednesday’s briefing or among the group traveling with Biden on Air Force One on Tuesday asked White House press secretary Jen Psaki or deputy press secretary Karine Jean-Pierre any questions on the subject.