The price increases bedeviling consumers, businesses and policymakers worldwide have prompted a heated debate in Washington about how much of today's rapid inflation is a result of policy choices in the United States and how much is tied to global factors.
The White House has blamed international forces for high inflation, including factory shutdowns in Asia and overtaxed shipping routes that are causing shortages and pushing up prices everywhere. The euro area, where prices are climbing at the fastest pace on record, is being blamed by officials for the world experiencing a shared moment of price pain.
A chorus of economists point to government policies as a reason for the high inflation in the U.S. They agree that prices are rising as a result of shutdowns and supply chain troubles, but they say that America's decision to flood the economy with money helped to send consumer spending into overdrive.
The world's trade machine is producing, shipping and delivering more goods to American consumers than it ever has, as people flush with cash buy couches, cars and home office equipment, but supply chains just haven't been able to keep up.
More than half of the increase is due to global factors, according to an economist at the Massachusetts Institute for Technology. She said that there is a domestic demand component that is important.
The White House tried to address inflation by boosting supply, but it took a long time. Mr. Biden is at risk of being unable to pass a social policy and climate bill because of rising inflation. The West Virginia Democrat whose vote is critical to getting the legislation passed has cited rising prices as one reason he won't support the bill.
The demand side of price increases may make it easier for policymakers to address. The Federal Reserve is preparing to raise interest rates in order to make borrowing more expensive in order to tame inflation. Fading government help for households may bring down demand.
The Consumer Price Index in the United States increased by 7 percent in the year through December, its fastest pace since 1982. In the last few months, it has moved up in many countries.
President Biden said during a news conference on Wednesday that the inflation has everything to do with the supply chain. Jen Psaki, the White House press secretary, said after the latest inflation data were released that it was a global phenomenon.
In large developing economies like India and Brazil, as well as in developed ones like the euro area, supply disruptions are leading to higher inflation. In the United Kingdom and Canada, data was released on Wednesday that showed prices were going up at their fastest rate in 30 years. The European Union statistics office estimated that inflation in the eurozone rose to an annual rate of 5 percent in December.
Eswar Prasad, a professor of trade policy at Cornell University, said that the U.S. is not an island in this storm of supply disruptions and rising demand.
Even though inflation is pervasive around the globe, it has been more pronounced in America.
The United States has had more inflation than almost any other advanced economy in the world, according to an economist at Harvard University.
He said that the difference is because the United States is in a category of its own.
The White House has argued that the United States and other major economies have different core inflation over the past six months. If you strip out car prices, which are up sharply, you can see that the gaps are gone. The elimination of cars from the U.S. consumption basket is not fair because people who don't buy cars would spend their money on something else.
The United States has seen a rebound in economic growth. The International Monetary Fund said in October that it expected the US to grow by 6 percent in 2021.
Bernstein is a member of the White House Council of Economic Advisers.
The United States approved $5 trillion in spending in 2020 and 2021. According to the data compiled by the International Monetary Fund, that was the largest share of the nation's output.
Many economists were in favor of protecting workers and businesses early in the Pandemic, but some took issue with the size of the package. They argued that the economy was already healing when households were sent another round ofStimulus.
Retail sales jumped after the checks went out.
Americans found themselves with a lot of money in the bank, and as they spent that money on goods, demand collided with a global supply chain that was too fragile to catch up.
In the first half of 2021, the U.S. government spent too much, according to Adam Posen.
It might not have mattered if there had not been labor market shortages. He said that it did.
Card 1 of 6.
What is inflation? Your dollar will not go as far tomorrow as it did today because of inflation. The change in prices for everyday goods and services is known as the annual change in prices.
What causes inflation? It could be due to increased consumer demand. Some developments, such as limited oil production and supply chain problems, can cause inflation to rise and fall.
Is inflation bad? It depends on the situation. Moderate price gains could lead to higher wages and job growth.
Can inflation affect the stock market? Trouble for stocks is usually caused by rapid inflation. During inflation booms, financial assets have been bad, while tangible assets have held their value better.
Americans found themselves with a lot of money in the bank, and as they spent that money on goods, demand collided with a global supply chain that was too fragile to catch up.
The ports faced delays and there was a shortage of truck drivers. Americans bought more goods than ever before in 2021, and foreign factories sent a record amount of products to the U.S. All that shopping was not enough to satisfy consumer demand.
The mismatch can be seen from the Port of Los Angeles. The port had its busiest year on record last year. Several ships have been waiting a month or more to dock, and it still has a huge amount of ships waiting.
The extra help the government gave to families last year was important to inflation, economists said. The gap between what consumers wanted and what companies could actually supply was widened when households were given more money.
Businesses raised their prices when goods came into short supply.
Strong U.S. demand has been driven by government checks. The living room has become a hot commodity due to the fact that consumers can't go to Paris or a fancy restaurant because of the virus. Families were forced to stop spending at the start of the Pandemic.
Demand for big purchases made on credit, from houses and cars to business investments like machinery and computers, has increased as the Federal Reserve's interest rates are at rock bottom. Data from the Federal Reserve Bank of New York shows that families are taking on more housing and auto debt.
The diagnosis could come with a silver lining if the demand is fueling inflation. It might be easier to temper consumer spending than to reorient supply lines.
As government help fades, people may begin to buy less. If the Pandemic abates, spending could shift back to services. The Fed's policies work on demand.
All Rights Reserved © 2024
