Day by day, Americans are beginning to fear the effects of an inflation that has reared its ugly head despite repeated assurances that it will be a temporary inconvenience.
The statistics are bad enough and getting worse. Ten months ago, the administration experts and the central bankers began to try and soothe the increasing preoccupations by assuring that the inflationary pressures were “transitory,” that is, of brief duration. But there is hardly a calming effect in play when people learn that inflation is higher than at any point in the past 30 years. For them, inflation is painful because it minimizes the wage growth that workers had begun to enjoy owing to the shortages that the pandemic onslaught had brought about.
It is a fact that the cost of gas at the pump and groceries at the market has shot up and shows little chance of easing. In the search for the culprit many point the finger at the Biden administration, addressing severe denunciations at the president and the Federal Reserve. For many, it is easy to denounce Biden’s spending agenda. The truth, however, is that Biden’s bills enacted or on the way to be approved after strenuous negotiations have nothing to do with inflation. Serious economists share the judgment of the Fed chief Jerome Powell that a major reason for price rise is supply bottlenecks. Other economists, such as the former secretary of labor Robert Reich, point to deeper structural reasons for inflation, specifically the economic concentration of the American economy in the hands of few corporate giants with the power to raise prices. It is nothing short of dramatic, and painful, to workers that the same corporations are raising prices as they collect record profits. For Reich and others, inflation is generated by the lack of competition. And yet, the price increases due to the supply chain crisis could be fixed by the companies causing the supply chaining. Biden and the government can hardly do that.
In practical terms, the gas and oil producers could produce more energy but they let the prices go up before producing more supply, which would bring prices down.
In fact, it is pathetic to see the president of the United States once again appealing to the OPEC oil producers to raise their production. Biden knows well that higher gasoline prices make voters unhappy and threaten the growth of the American economy. Crude prices have surged 60 percent this year. The OPEC members, and Russia’s Putin, see more cash for them; Putin be damned. And yet, most Americans do not understand a simple fact; that the U.S. president does not have much control over gas or oil prices. The global market is to blame for the supply-demand imbalance.
Unfortunately for the president, it is bound to get worse during the winter months.
In the final analysis, it does not look like the present inflation will be “transitory”, in what it certainly is a far more damaging repeat of the Seventies. The more pessimistic of the hawks call for a reductionof the monetary stimuli and an increase of interest rates to more normal levels. But such a move can bring consequences such as slowingdown the recovery from the pandemic waves. Before pillorying Biden for the scourge of inflation it is also important to understand the involvement of the Federal Reserve that is called upon to manage the complicated task of slowing down the inflation and at the same time helping the economy expand and recover the 5 million jobs that were lost during the pandemic. President Biden and Fed chairman Powell are navigating uncertain waters without the help of precedents in the matter of monetary policies and financial adjustments after extraordinary economic measures. Let us wish them luck in managing the unforeseeable.