How long will high inflation in the United States continue

The French "Echo" website recently reported that the US White House was going to celebrate the unemployment rate falling to a low of 3.9% last year and the historic economic growth rate, but eventually inflation grabbed the limelight.

In December 2021, the U.S. Consumer Price Index (CPI) rose 7 percent year-over-year, the largest year-over-year increase in 40 years, surpassing 6 percent for three consecutive months. In fact, from the second half of 2020, the CPI began to pick up the ladder. According to statistics, from January to May 2020, the US CPI fell from 2.5% to 0.1%; but from June to November, it slowly rose from 0.6% to 1.2%; from December 2020 to May 2021, the CPI soared from 1.4% to 5%; from June to December, it rose from 5.4% to 7%.

Such a rally has forced the Fed to abandon the temporary theory of inflation in the United States and face the erosion of economic vitality by inflation.

Meanwhile, U.S. consumer expectations for inflation have soared since April last year, and prices are now expected to rise by 6 percent in the coming year and 4 percent over the next three years. This means that consumers believe that inflation will remain high, and this expectation will directly affect domestic consumption.

Consumer confidence fell to 68.8 in January from 70.6 in December, the second-lowest in the past 10 years, below the 6-month average of 70.3 and even lower than 82.9 in the first half of last year.

High inflation will increase pressure on the Fed to tighten monetary policy quickly, and too much tightening could increase the risk of a recession if the economic recovery is on an unstable footing.

Former Treasury Secretary Summers warned in December that it would be difficult for the Fed to contain price increases without causing a recession, with a 30 to 40 percent chance of a recession in the next 24 months and a soft landing of only about 25 percent.

How long inflation will last is directly related to the implementation of various policies and the prospects of the US economy. Exploring the root causes of inflation, the strong stimulus measures taken in response to the epidemic are the main culprits, and the repeated intensification of supply chain pressures has directly led to high price data.

In December, used car and truck prices rose 37.3 percent and energy prices rose 29.3 percent year-over-year, both of which were the main drivers of the increase in CPI in previous months. In addition, the price of goods and services has a greater impact in the core CPI. These are closely related to supply chain shortages.

From the perspective of future trends, the chip supply pressure that caused the price of used cars to rise, the supply of oil-producing countries that caused energy prices to rise, the epidemic that caused the price of goods and services to rise, the shortage of labor and other factors are difficult to fully improve in a short period of time, even if the Fed starts to raise interest rates from March, it will take a period of time for the policy to be highly relaxed to tighten, so it is not realistic to expect a rapid price decline.

Fed Chairman Jerome Powell recently said that supply chain problems may ease this year, which will help drive down inflation, but labor shrinkage may exacerbate inflation and may be worse than supply chain problems. This indicates that the United States will still have to live with inflation for some time.

Author: zhou wuying □

Source: Economic Reference