Inflation fears grow for the White House – fr

Inflation fears grow for the White House – fr

Rising prices are putting increasing pressure on President BidenJoe Biden Warren calls on US to support Israel-Hamas ceasefire UN Secretary-General “deeply disturbed” by Israeli strike on skyscraper that housed media nationwide nurses condemn new CDC mask guidelines READ MORE and the Federal Reserve to prevent inflation from derailing the recovery from the coronavirus recession.
A surge in consumer demand triggered by government stimulus measures, improved vaccinations and reduced restrictions in the event of a pandemic are straining global supply chains. Manufacturers and other hard-hit industries are struggling to get back on track after a year of lockdowns, leading to supply shortages and increasing costs.

All these factors combined to push the consumer price index (CPI) up 0.8 percent in April and 4.2 percent in the past 12 months, the fastest annual rate since 2008, the Labor Ministry reported last week. By eliminating the most volatile food and energy prices, the index recorded the largest monthly increase since 1982.

While the increase in consumer spending is a sign of heightened optimism, the Biden administration faces political risks as Americans grapple with levels of inflation the country has not seen for more. of a decade.

Growing American concern about inflation could derail not only Biden’s economic agenda, but also Democrats’ hopes of defending narrow majorities in Congress in the 2022 midterm election.

“Now people are spending again, and obviously the April numbers show that they are spending even more aggressively than forecasters, most of them, expected,” said George Selgin, an expert in economic policy at the Cato libertarian institute.

“There are unfavorable supply shocks going on, some of which affected the April figures, but the big story is the pent-up demand and purchasing power that people have finally started to shed,” a- he added.

Inflation was widely expected to rise as the United States recovers from the coronavirus recession after a drop in consumer spending. But the unexpected price increases drew more criticism from Republican lawmakers who for months questioned the White House and Fed’s handling of inflation.

“There has never been a time that I know of in history where you have had a significant increase in the money supply where you have no inflation,” said Senator Rick Scott (R-Fla. ) In an interview with The Hill.

White House and Fed officials say that with the United States still down about 9 million jobs since the start of the pandemic, the economy is not in danger of overheating. Instead, they argue that the country cannot afford to relax its support and risk another slow recovery like the multi-year rise of the 2007-09 recession.

Biden and Democratic lawmakers are trying to spend billions of dollars on infrastructure spending after enacting a $ 1.9 trillion COVID-19 relief bill in March. While GOP lawmakers are open to a deal on fundamental aspects of infrastructure such as roads, bridges and waterways, they have delved into Biden’s broader agenda and insist it will boost inflation even more.

“You have to stop reckless spending,” Scott said. “The federal government must start living within its means.

The Fed’s almost explicit refusal to hike interest rates before 2022 at the earliest adds to hawks’ concerns about inflation.

Many economists have dismissed these concerns and share the Fed’s view that after a few months of high inflation readings, price increases will subside as the economy settles into a more normal pace of recovery. .

“We actually only saw two months of strong price increases,” said Laura Rosner-Warburton, senior economist at research consultancy MacroPolicy Perspectives.

“It would be premature and a kind of overreaction to consider [April CPI report] in particular and being too worried, ”she added.

Rosner-Warburton said April’s price hike was due to three short-term factors: the statistical quirks of a sharp increase coming a year after a deep decline, temporary supply constraints linked to the pandemic and the release of pent-up demand.

“Last year we had blatant price drops, and this year we don’t see those drops being repeated. So on an annual basis, comparing it looks like inflation is artificially higher due to the drop last year, ”she said.

Price increases for housing, airline tickets, recreation, auto insurance, and household goods and services – all of which fell sharply last year – were also the main drivers of price increases in April. .

While some prices rebounding to normal levels pushed inflation up, supply shortages for other commodities had an even greater effect. About a third of the CPI surge last month was due solely to a 10% increase in the price of used cars and trucks.

The normal flow of used cars into circulation has been slowed by semiconductor shortages delaying the manufacture of new cars, Rosner-Warburton said, reducing overall supply. Demand has also exploded as car rental companies that liquidated their fleets at the start of the COVID-19 rush to catch up with Americans looking to hit the road now that more states lift restrictions. on coronaviruses.

“Ultimately, supply should increase to meet that demand, and demand will likely decline, as we will be affected by the mitigating effects of the fiscal stimulus. So this bottleneck shouldn’t be something that lasts, ”she said.

Even so, uncertainty as to whether inflation will rise and how long there will be serious potential implications for Biden and Federal Reserve Chairman Jerome Powell.

The Fed is also trying to sell financial markets on its recently adopted change in approach to inflation, which calls for allowing price increases to exceed the central bank’s target long enough to offset decades of deficit.

Inflation has been below the Fed’s 2% annual target for more than a decade, hampering wage growth and the central bank’s ability to raise interest rates. To reverse this trend, Powell and Fed officials say they will not raise interest rates until inflation is on track to offset deficits and the United States hits the bottom line. maximum employment, which they do not expect before 2022.

“All of these reasons make it difficult for the Fed to start raising interest rates, and it means we have to ask ourselves if it will when it needs to do so aggressively enough to achieve its goals,” Selgin said.


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