Inflation may be great for President Biden next year. Yahoo Finance’s Rick Newman shares the details.

Video Transcript

ZACK GUZMAN: Despite warnings that inflation could lead to doomsday, implications for the market, as presented on yesterday's show by "Rich Dad, Poor Dad" author Robert Kiyosaki, there are some out there potentially pointing to the upsides for President Biden and company when it comes to moderate inflation. And for more on that, I want to bring on Yahoo Finance's Rick Newman to break it down for us. Rick.

RICK NEWMAN: Hey, Zack. Yeah, so what economists are looking at, Goldman Sachs, in a recent note, called this extreme base effect. And for all these things that are going up in price by double digits, what that means is, prices a year ago were so depressed that it's pretty natural that now that we're getting back to normal, demand is up, we still have some supply disruption. It's actually normal that we've seen these big price increases compared with one year ago.

So lumber is a good example. We've been talking a lot about lumber. Lumber prices are up about 55.0% year over year. And they're way above normal. But let's say a year from now, half of that gain has been erased, you could still have lumber prices that are above historical norms. But on a year over year basis, they would actually be down around 15%

So for that reason, I think a lot of these categories where we're seeing this surge of inflation-- and that's travel-related stuff, used cars, other things like that. A year from now, because prices are now so elevated, those same extreme base effects could produce not just low inflation, but actually deflation in some of those categories. So I think when you hear Federal Reserve officials say we think inflation is transitory, that's one reason they think that.

ZACK GUZMAN: Yeah, it is interesting, too, though, I suppose, because as everything is in Washington turning into a bit of a political battle, as you have Republicans already kind of pointing to those inflation prints that we've seen so far as proof that things are going to continue to run away, I mean, I wonder how much of that is maybe being co-opted right now in the current debate over infrastructure and how Republicans might be really trying to hammer that inflation point now.

RICK NEWMAN: Yeah, and, you know, you're already-- so gas prices are another thing that's up. And that is-- you know, that's partly because, again, demand was so depressed last year when everyone was just holed up at home. Obviously, nobody was traveling. But gas prices are a little different. You know, gas prices respond to global factors, not just American factors.

And Republicans are blaming Joe Biden for higher gas prices. They're hoping that voters have in mind things such as, oh, Joe Biden canceled the Keystone XL Pipeline, and gas prices are up. Therefore, it's Biden's fault. That's not remotely true. The Keystone XL Pipeline has had no effect on gas prices. And it probably wouldn't have, even if it were fully operational.

But look, I mean, critics of the guy who's in power, they make connections, and they kind of lead voters along. And I think that's the risk for Biden. I think there are two areas where we could have sustained inflation. One of them is gas prices because there are some forecasts of oil prices that could hit $100 a barrel by next year.

And also home prices. Home construction is just constrained by permitting difficulties. There's not enough land in some places. So that's why we have soaring prices there. Of course, soaring prices of homes are good for the homeowner, but they're just-- but they're bad for the first time buyer who can't get into the market.

ZACK GUZMAN: All right, Rick Newman bringing us the latest there on the inflation front, two sides of the coin. We'll see how it all plays out. Thanks for the update.