Yellen recently said that the United States tariffs on Chinese exports to the United States have led to an increase in US prices, and lowering tariffs may help alleviate inflationary pressures
The United States experienced seven rounds of inflation after World War II, which has caused financial difficulties for 71% of low-income households. The picture shows sellers vigorously promoting Christmas gifts, but few people are interested. Photo/ Caijing reporter Jin Yan
Wen | Special Correspondent of Caijing Jin Yan from Washington
Edit | Su Qi
Data released by the Labor Department earlier this month showed the U.S. Consumer Price Index (CPI) surging 6.2 percent in October, its biggest gain in 31 years. Rising food and energy prices are the main factors driving up inflation. As the economy emerges from lockdown, supply chains are under pressure and energy, raw materials and transportation prices are soaring.
Over the past year, gasoline prices have soared by 50%, energy prices have soared by 30%, used cars by 26.4%, ham prices by 20%, eggs by nearly 12%, gasoline prices by 50%, washing machine and dryer prices by 15% ... Almost all commodities are rising in price. After adjusting for inflation, the average Hourly Wage for Americans in October was actually down 1.2 percent from the same period last year.
A number of Wall Street sources pointed out to the "Finance" reporter that behind the soaring inflation is the rise in costs, which is attributed to supply chain problems and rapid growth in demand. Wage growth has not accounted for as much as a source of inflation this year, but that could begin to shift as labor shortages persist.
The transmission of wage inflation to the consumer side was already evident at the beginning of the year. Wage inflation for employees in U.S. food service and drinking establishments in January 2021 has been transmitted to product prices in April. The main driver of the wage increase is the labor shortage, which is due to the decline in the labor force participation rate after the epidemic on the one hand, and the sharp decline in the number of immigrants caused by the lockdown policy on the other hand. Given that some people have permanently left the job market, the labor force participation rate may decline structurally in the future, and the temporary departure of labor from the job market due to the impact of the epidemic and the return of immigrants depend on the situation of the epidemic.
Under the uncertainty brought about by the South African variant strain Olmiqueron, it will take time to make up for the gap in the job market, and the recruitment difficulties continue, and the US wage growth rate in the first quarter of 2022 is likely to remain above 4%, continuing to push up inflation.
At a time when high inflation persists, China becomes a possible solution. U.S. Treasury Secretary Yellen recently said that the United States has imposed tariffs on Chinese exports to the United States, resulting in rising PRICES in the United States, and lowering tariffs may help alleviate inflationary pressure.
Yellen said at a Conference hosted by Reuters on December 2 that tariffs of up to 25 percent on Hundreds of Billions of dollars worth of Chinese exports to the United States each year "do lead to higher prices in the United States." She said some of the tariffs imposed by Trump on Chinese exports to the United States during his presidency "create trouble without any substantial strategic reason." Yellen said lowering the tariffs by restarting the exclusion process could help ease inflationary pressures, "and that's what we're working on."
Late last month, former U.S. Treasury Secretary Jacob Lu also expressed the view of alleviating inflationary pressures by eliminating tariffs on Chinese goods, arguing that tariffs are not an effective way to deal with U.S.-China trade issues.
According to a report by the Peterson Institute for International Economics, U.S. tariff rates on Chinese exports to the United States averaged 19.3 percent on trade-weighted terms at the beginning of 2021, up from 3.1 percent in early 2018.
Moody's Investors Services reported that more than 90 percent of the additional costs of tariffs on China are borne by U.S. importers. The U.S. Consumer Price Index rose 6.2 percent year-over-year in October, the largest year-over-year increase since November 1990, according to the U.S. Department of Labor. A new analysis by the New York Federal Reserve Bank said more tariffs on imports were unlikely to narrow the U.S. trade deficit because domestic producers could face higher export costs.
According to a survey released by Gallup Consulting on December 2, 45% of American households have experienced financial difficulties of varying degrees, 10% of households believe that financial difficulties have seriously affected their current lives; 71% of low-income households have experienced financial difficulties due to rising prices, and have been most affected by inflation. As many as 30 per cent of respondents with higher education diplomas are also plagued by financial difficulties.
Businesses in both the U.S. and Europe said strong demand in November, combined with continued shortages of spare parts and labor, had led to record price increases. In the United States, the lifting of anti-epidemic restrictions has boosted business output, especially in the services sector. Businesses in Europe have also reported a pick-up in production, although a resurgence in COVID-19 cases has raised concerns about the reintroduction of restrictions.
The Fed's previous willingness to tolerate high inflation was the belief that inflation would soon disappear. And as inflation data hits new highs, the coping strategies need to be revisited. Photo/ Caijing reporter Jin Yan
According to an IHS Markit survey of businesses, in the U.S. and Europe, the combination of strong demand and supply shortages has led to an accelerated rise in business costs and selling prices. IHSMarkit's survey shows that as companies continue to pass on price increases to their customers, the magnitude of price increases in the United States so far in November has been flat with record levels in October. In Europe, prices rose the most in nearly 20 years. The OECD said inflation in the euro area is currently expected to rise from 1.9 percent to 2.7 percent. Seiji Adachi, a member of the Bank of Japan's policy committee, said a few days ago that after years of flat prices, the likelihood of Rising Inflation in Japan has increased.
On December 3, local time, the International Monetary Fund published an article arguing that in the case of unclear economic recovery prospects and high inflation caused by the mutation of the new crown virus strain, the MONETARY policy of the United States should pay more attention to inflation risks. The IMF pointed out that the global supply chain shortage is expected to be alleviated by the second half of next year, but due to the impact of factors such as the Olmiqueron strain, high inflation is likely to last longer than previously expected.
The article believes that the recovery strength and inflation pressure of the economies of various countries are different, and monetary policy can be adjusted according to their own specific conditions. For now, compared with other advanced economies such as eurozone countries, inflationary pressures in the United States are "continuing to intensify", and inflation has reached its highest level in 31 years, in which case the US monetary policy "has reason to pay greater attention to inflation risks", so it is appropriate for the US Federal Reserve to accelerate the reduction of asset purchases and advance the time for interest rate hikes.
The Organisation for Economic Co-operation and Development (OECD), in its latest forecast for the global economy, said the rise in inflation around the world would be longer and larger than previously expected. UBS said that since the improvement of the epidemic, the surge in demand after the restart of the US economy has stimulated the economy, stimulated by the US fiscal "big release", consumption continued to recover, and the prices of consumer goods and services continued to rise, resulting in increasing inflation in the United States. At the same time, bottlenecks in the U.S. supply chain and labor shortages have also pushed up production costs and exacerbated inflation. UBS believes that the soaring prices of consumer goods caused by this may be difficult to mitigate in the short term.
An unnamed economist told Caijing that it is safe to say that the era of low global inflation is gone. In the short term, there is a growing risk that households and businesses will become accustomed to faster price increases. The high inflation rate will continue. This is the outcome that central bankers fear most, as it creates a vicious circle of rising wages and raising prices to cover rising costs.