“The United States adopted the most drastic fiscal response in the world and is experiencing inflation commensurate with it,” said Duke University economics professor Connel Fullenkamp.
Savings accumulated during the pandemic
According to the economist, the generous aid granted by the administrations of former President Donald Trump (2017-2021) and the current president, Joe Biden, to families, companies and the unemployed have served to alleviate the difficulties of many people and have also allowed many to accumulate savings they are now spending.
“Many households received more than they needed and are still spending it, which keeps demand skyrocketing and, in turn, exacerbates supply chain problems. During the pandemic, Americans’ savings rose by $ 2.5 billion. dollars, “explained the professor.
In addition, the strong stimulus policy had another consequence that is also contributing to inflation: many people have opted out of the labor market, seeing their needs covered by the increase in unemployment benefits – a policy that ended in September – and the savings growth.
This explains the labor shortage in which the United States finds itself, a situation in which it is very difficult for employers to find and retain workers, which is why they offer them better salaries that in turn have an impact on a rise in prices to consumers.
Looking for good jobs
“A lot of people are taking time off or looking for a specific job, not accepting the first thing that comes up because there is no pressing need. They are looking for good jobs and in a location that they like,” Fullenkamp added.
To combat inflation, the Federal Reserve (Fed, the US central bank) has already begun to gradually reduce the amount of its monthly bond program, and this week announced that it plans to end it completely in March of next year.
Following a two-day meeting of the governors of the US central bank, the Fed left interest rates unchanged for the time being in the range between 0% and 0.25%, but several of the governors who participated in that meeting indicated in their individual forecasts that expect up to three interest rate hikes in 2022.
In a line similar to that of Fullenkamp, the director of the Research Seminar in Quantitative Economics at the University of Michigan, Gabriel Ehrlich, also points to a demand for goods above the usual as the main reason for inflation, and compares it with the significantly lower increase in service prices.
“The inflation that we have seen so far has focused on goods. People have not been able to spend on services as they did in 2019: they have not been able to go to the movies, travel, eat in restaurants … And all that money has turned towards durable goods, “he said in an interview with Efe.
Inflation with growth
The Consumer Price Index reflects this in November, its most recent data, when it registered a total year-on-year price rise of 6.8%, but with a large variation between durable goods (9.4%) and services (3.4%).
Of durable goods, vehicles are one of the products whose price has risen the most, standing at 11.1% year-on-year for newly manufactured vehicles and 31.4% for second-hand ones.
Like Fullenkamp, Ehrlich believes that the generous fiscal and monetary policies help to explain this increase in demand, but he believes that it should not be forgotten that they have been carried out to “avoid a deep and lasting recession”.
In that sense, he recalled that although inflation is the price to pay, the United States is also growing at a higher rate than many other countries.
