The US faces the specter of inflation as economic activity returns


The good news is that the US economy is preparing for months of recovery in the spring, when a large part of the population has received the vaccine against Corona, but the bad news is that this economic vitality may lead to higher prices.
According to the “French”, some economists and markets fear a return to the inflation that the United States faced in the seventies of the last century, and are wondering whether they will have to add zero, if not two, to the price of a bottle of milk?
And due to the combination of several factors that could form an explosive mix, the economy will witness a gradual recovery starting from the spring thanks to the vaccination campaign, and because part of Americans – the wealthiest – have a lot of money to spend.
For a year, they have not traveled much and visited little restaurants, cafes and gyms, which enabled them to save money. For its part, the US federal government distributed trillions of dollars in public funds, including checks sent to families or an increase in unemployment benefits more generous, and the saving rate in the United States, which ranged between 7 and 8 per cent, before the crisis, is now 20.5 per cent.
And the spark will be – according to economists – the new stimulus package wanted by Joe Biden, and it was approved by the House of Representatives yesterday, and is supposed to be adopted by Congress in the coming days, and the package of 1.9 trillion dollars will increase the savings of families who will be ready to withdraw money and use bank cards as soon as they are able to Get out safely.
In the face of these full-pocketed consumers, it is uncertain that supply will be sufficient to meet demand, so there will be inflation in the economy, and the result is that prices can rise dramatically.
If this potential rise in prices is very large and continues, it may lead to a decline in the purchasing power of families, says Gregory Daco, an analyst at the “Oxford Economics” group, “What we fear is an inflationary spiral in which we consume today for fear of rising prices tomorrow, and this vicious circle feeds Where inflation itself is getting out of control. “
The “Federal Reserve” will have to flood the markets with liquidity through asset buybacks. On the other hand, it will have to raise key interest rates that are currently almost zero, and these rates have an impact on the various credits and loans granted by commercial banks to individuals and companies.
Of course, raising the interest rate will reduce consumption, which alone accounts for two-thirds of US GDP. Jerome Powell reiterated, this week, that the institution will continue to support the economy, because the labor market is still far from recovering. He stressed that the real unemployment rate is 10 percent, when taking into account the unemployed who have stopped looking for a job, which is much higher than the official rate of 6.3 percent.


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