The United States is recovering faster than its peers from the historic bout of inflation squeezing families and souring the mood of the nation, according to a new analysis from White House economists.
Inflation remains much higher than economists or American families would like, a large part of the reason why President Joe Biden's approval ratings on the economy -- and overall -- have remained lackluster. Yet the cost-of-living crisis is a truly global phenomenon, largely brought on by factors outside politicians' control -- the pandemic, the war in Ukraine and supply chain snarls have sent prices around the world soaring.
And the problem is much worse in other major economies, the Council of Economic Advisers report, shared first with CNN, shows. It finds that when measured on an apples-to-apples basis, annual inflation peaked earlier in the United States and is now lower than that of any other G7 country.
To make those conclusions, the CEA sought to solve a problem that has long vexed economists: How to make cross-border comparisons of inflation given substantial differences in how inflation is measured by different countries. To address that, the White House economists built an apples-to-apples inflation metric that makes certain adjustments to how shelter costs factor into overall inflation.
In part due to those adjustments, this "harmonized" inflation metric compiled by the CEA finds that that annual US inflation peaked at around 10% last summer when gas prices spiked above $5 a gallon.
The inflation gauge is now below 3% in the United States, significantly cooler than any other nation in the G7, which includes Canada, France, Germany, Italy, Japan and the United Kingdom. The next-closest is Japan and Canada at around 4%. The UK and Italy, heavily exposed to Russia's invasion of Ukraine, are still at around 8%.
"We're absolutely not declaring victory. But we are very heartened and happy to see the trend going where it is," a CEA official told CNN in a phone interview. "I'm encouraged because it shows we are making progress on inflation. And it gives hope to other countries."
Inflation is not unique to America
Some Americans may be understandably skeptical about a positive inflation analysis crafted by the White House -- just as the 2024 presidential campaign kicks into gear.
"At the Council of Economic Advisers, we are part of the White House but we try to tell it like it is," the CEA official said, pointing to the group's reputation for deep-dive Twitter threads on major economic releases, even if the data is ugly. "We pride ourselves on telling the good and the bad. And here's the thing about inflation: It is undeniably down in the United States."
Two independent economists that CNN shared the CEA report with support the logic powering the analysis.
Mark Zandi, chief economist at Moody's Analytics and a former adviser to the 2008 presidential campaign of Republican John McCain, called the CEO report "well done" and the calculations to harmonize inflation "sensible."
"The CEA analysis nicely shows that the painfully high inflation is a problem for much of the globe," Zandi told CNN, pointing to the role of the Covid-19 pandemic and the war in Ukraine.
Joe Brusuelas, chief economist at consulting firm RSM, described the CEA methodology as "solid and impressive."
Brusuelas said the report appears to not just be an "attempt to shape public expectations around inflation," but perhaps to send an indirect message to the Federal Reserve that it may be time to craft a "final act" in the rate-hiking cycle.
White House spokesperson Michael Kikukawa disputed the notion that the CEA is messaging the Fed. "This blog compares inflation conditions across major, advanced economies. It is not about the Fed, whose independence we respect," he said.
'Bidenomics' tarred by high inflation
The biggest adjustment to inflation made by the CEA surrounds how shelter costs are measured. Inflation statistics in the United States and Canada incorporate owners' equivalent rent -- what it would cost a homeowner to rent based on market rates and amenities. This can often make up a substantial chunk of monthly inflation statistics.
However, this form of shelter inflation is excluded by officials in Europe. That's why the CEA's apples-to-apples inflation metric excludes owners' equivalent rent, but still includes rental costs and the repair costs facing homeowners.
The goal of making these adjustments isn't to accurately capture all of the costs facing families, but to make a fair comparison of inflation between major economies.
The inflation report comes a day before President Joe Biden is scheduled to deliver a major address spelling out his vision for the economy, dubbed "Bidenomics." Instead of so-called Reaganomics' trickle-down tax cuts for the rich championed by Republican former President Ronald Reagan, the White House says its economic strategy focuses on making investments that lift the middle class.
Of course, the rub with "Bidenomics" is the fact that the Biden era has been tarred by crushing inflation. Bank of America CEO Brian Moynihan told CNN's Poppy Harlow on Tuesday it will likely take "all of this year and all of next year" before inflation cools to the Federal Reserve's goal.
'The job is not done yet'
Even the CEA analysis cautions that going forward inflation "remains considerably uncertain across all G7 nations, including the US."
High inflation is a major reason Americans give the president poor marks on the economy, despite historically low unemployment and a boom in clean energy and manufacturing.
A recent Gallup poll found just 35% have a "great deal" or "fair amount" of confidence in Biden on the economy, nearly matching the record low under George W. Bush in 2008.
Wall Street bank Piper Sandler cited Biden's weak approval ratings on the economy and shrinking inflation-adjusted wages as key reasons the president could "get crushed" in the 2024 election.
"If Biden is up against an opponent not named Trump, he is a distinct underdog...and there is a very real possibility Democrats could get wiped out," Piper Sandler strategists wrote in a note to clients on Friday.
Finding out that inflation is even worse in Japan may be little consolation to the average voter in Middle America still struggling with the high cost of living.
"To that family I would say, this was not a unique problem. But that does not diminish what families went through with higher prices. That is absolutely a painful thing," the CEA official said.
The official acknowledged that while inflation is cooling, more work is still needed, especially around elevated housing costs and used car prices.
"There are still places where we are very cautious. The job is not done yet," the official said.