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Inflation: 'We are not out of the woods,' White House economist says

White House Council of Economic Advisers Economist Jared Bernstein joins Yahoo Finance Live to discuss the December CPI reading, core inflation, food and gas prices, economic growth, and the implementation of the Inflation Reduction Act.

Video Transcript

RACHELLE AKUFFO: Well, inflation in the US slowed to a 6.5% increase in December, according to the latest read on the consumer price index. Now that marks the sixth straight monthly deceleration since a mid 2022 peak. Well, joining us now is the White House Council of Economic Advisors member Jared Bernstein. Thank you so much for joining us this morning. So first want to get some of your takeaways because we know that it was really gasoline prices falling that was one of the biggest contributors here.

JARED BERNSTEIN: Yeah, this is something that's been very important to this president. He consistently talks about the importance of breathing room at the pump for American consumers. Now, in December, according to this morning's CPI, gas prices fell 9.4%. That sounds like a year over year number. It's actually a monthly number. We know that gas prices peaked out at a bit over $5 a gallon in June of last year. This morning, I think I saw them at 3.27. So $1.75 off the price of a gallon of gas.

That is but one factor in the report, though. We saw used cars continue, I think, a six or seven month negative handle on that part of the index. Airfares down. Core goods continue to reflect the improvement in supply chains. That unsnarling has helped put downward pressure on those prices, too. So it's not just gas, but that's, of course, a prominent component.

RACHELLE AKUFFO: And obviously, other things that hit home for people, we're talking food inflation. That did tick up as well, as well as shelter, some of these stickier parts of the inflation picture. Why do you think we're still not seeing enough of a decline right now?

JARED BERNSTEIN: Well, last month was actually the smallest increase in food prices in almost two years. And in fact, if you go through sector by sector within the components, you'll see a pretty consistent deceleration in the price of foods. Now eggs, by the way, went the other way, up 11% over the month. And that's very much a symptom of the avian flu. Interestingly, chicken came down, eggs went up. We can argue about which came first. But that's a different discussion.

So, broadly speaking, though, we are definitely seeing some slowing in food as well. Now it's not nearly the same as gas where we've seen actual declines in prices and food. We're talking more about slower inflation. But I think the key point here is, if you look at overall inflation, which, of course, includes food and gas, it ticked down a tenth of a percent in December, and as we've mentioned, has been decelerating in recent months.

RACHELLE AKUFFO: And what do you think this does in terms of recession prospects? Obviously, a lot of people wondering what the Fed is going to do with this information, if the Fed is over tightening. What does this do for the overall economic picture?

JARED BERNSTEIN: Well, look, from the White House, the way we've talked about this, ever since the president wrote about it around a year ago in an op-ed, is a transition to steady, stable growth. And the data flow that we're seeing is absolutely consistent with that scenario. That is, it is consistent with an economy that's moving to maintain the achievements we've seen thus far, particularly in the job market.

You heard the president talk about that a few minutes ago-- an unemployment rate that's at a 50-year low, continued strong job growth, high levels of openings and opportunities for workers. We see the strong job market and this decelerating inflation story as very much consistent with maintaining this transition to more steady, stable growth. At least the current data flow, I think, is quite supportive of that trajectory.

RACHELLE AKUFFO: And of course, any time there's good news, everybody wants to take credit for it. How much do you credit sort of the president's actions versus what we've seen from the Fed, versus perhaps just capital markets doing what they do best?

JARED BERNSTEIN: Well, again, it's an interesting-- it's a good question because it takes me back to that same piece I was thinking of. So the president sort of outlined a three-part plan to help maintain the gains we've achieved while putting downward pressure on prices. And that-- those three parts were, number one, an independent Federal Reserve. So you're, of course, right. That's in the mix.

Part two is doing all we can to help families with the prices that they face in their daily and weekly budget. So, of course, his actions on the strategic reserves, releasing oil there, those fingerprints are on the gas results even now.

And then deficit reduction has been, I think, complementary to Fed policy in terms of what we call a negative fiscal impulse. That means helping on the inflationary front. So we've more work to do. We are not out of the woods. 6.5% year over year is still too elevated inflation, but we're going to continue to press because I think the data flow, again, is very consistent with, A, that the president's plans are working to maintain the gains we've achieved while putting downward pressure on prices.

And B, looking forward, we have plans in place to build on these successes, whether it's the chips, whether-- in other words, standing up domestic semiconductor industry, whether it's standing up domestic clean energy production, or reinvesting in our nation's infrastructure. All of those work this year, 2023, to maintain the gains we've seen, while expanding the economy supply side, which helps with medium and longer term inflation.

RACHELLE AKUFFO: And of course, with a Republican-controlled House now, how much of a dampener could that be on some of the economic plans that the president has?

JARED BERNSTEIN: Well, the three things I just listed for you, the Inflation Reduction Act with its investments in clean energy, the bipartisan infrastructure law, reversing decades of disinvestment in critical public goods, and the Inflation Reduction Act, every one of those is in the books. It's legislated. And let me tell you something about President Biden. I worked for him when he was the vice president, when he was the Sheriff Joe, implementer in chief of the Recovery Act.

Something that people should know about Joe Biden is more than almost any other holder of high office I've ever worked for, he cares a ton about implementation. And he has told his staff, from the cabinet on down, 2023 is about efficiently, effectively implementing these programs on behalf of the American people. Now from my perspective, as an economist, they are pro productivity, they are pro growth, they are pro job, they are pro environment, sustainable environment. And by-- as I said a second ago, by investing in the economy supply side, they're helpful on the longer term inflation story.

RACHELLE AKUFFO: Well, I do want to thank you for joining us this morning. White House Council of Economic Advisors member Jared Bernstein, thank you for taking the time this morning.