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      Why is US inflation so high – and how long will it last?

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      Why is US inflation so high – and how long will it last? Soaring prices a top concern for many Americans, and likely influencing many voters in a midterm election year Inflation in the US is at a 40-year high – an astounding 9.1% year-over-year, according to a government report released Wednesday.Prices have climbed every month, while consumer confidence has hit record lows. Inflation is now a top concern for many Americans, and is likely influencing many voters in a midterm election year.What is driving this inflation, however, is not new: rather, it is largely the fallout of two years of the Covid-19 pandemic. Here is what we know.Why is inflation in the US so high?The Covid-19 pandemic strapped the US economy on to a rollercoaster. In early 2020, nationwide lockdowns caused millions of Americans to be temporarily laid off from their jobs. Then president Donald Trump responded by signing a $2tn aid package aimed at directly helping businesses and individuals, including stimulus checks that put money directly into people’s pockets. It would ultimately be the first of three stimulus packages, together pumping an eye-watering $5tn into the economy.That summer, businesses slowly started to reopen. But it would take another year and a half for the unemployment rate to fall back to where it was before the pandemic, and with wages rising due to a tight labor market, consumer spending started to climb: people wanted new homes, restaurant meals, appliances and furniture.As the demand for goods soared, supply remained constrained – because of the infamous supply chain crisis, which is only just now starting to ease. At the peak of the crisis, ports were clogged with ships trying to dock, containers were falling into the ocean and there was a shortage of truck drivers. The war in Ukraine, along with China’s own coronavirus lockdown in the spring of this year, also played roles in keeping supply tight during 2022. That means higher prices.What sectors are driving inflation?Gas, food and housing prices have all soared, according to the US Bureau of Labor Statistics. Year-over-year, gas prices are up 7.5% – though Joe Biden has called the inflation rate “out-of-date”, as gas prices have been falling the last few weeks.Prices have also gone up at grocery stores, particularly for fruit, vegetables and non-alcoholic beverages. Grocery prices over the last year have risen 12.2% – the highest increase since April 1979. Home prices and rent have increased too – up 5.6% compared with last year.How long will inflation last?No one can really predict, nor do we know if it has peaked, because so many factors are at play. Gas prices are going down, it’s true, but it’s unclear whether that will be enough to send inflation downward as well.The Federal Reserve, headed by Jerome Powell, has been aggressive in its response to inflation, raising interest rates twice this year. Early reports indicate that the Fed is looking at yet another three-point interest rate hike at the end of the month.What are the lasting effects of inflation?High, long-lasting inflation is worrisome because it decreases the value of currency, weakening the purchasing power of the American dollar and eroding savings.The Fed’s control of interest rates is its most powerful tool to curb inflation. But it is a tough balancing act, as it risks a recession. A slowdown in investments could have a cascading effect on jobs and spending, though it remains too early to predict any recession – not that that has stopped certain people, and banks, from doing so.And there are some things inflation doesn’t necessarily affect. The unemployment rate has held steady at 3.6% – around the same rate as before the pandemic. And the economy has shown other signs of resilience – particularly in jobs, which grew 372,000 in June.TopicsUS economyEconomicsConsumer spendingFederal ReserveBiden administrationUS politicsexplainersReuse this content More

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      in World Politics

      Oil Realpolitik Has Returned With a Vengeance

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

    • 63 Shares189 Views

      in World Politics

      This is Biden’s Inflation Plan?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

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      in World Politics

      Why Joe Biden’s Green Energy Policy is Dead

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

    • 113 Shares179 Views

      in World Politics

      Biden’s America and MBS’s Saudi Arabia: Is Diplomacy Possible?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

    • 113 Shares179 Views

      in World Politics

      Who Can Put a Price on the Ukraine War?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

    • 213 Shares159 Views

      in US Politics

      Why is the US about to give away $52bn to corporations like Intel? | Robert Reich

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      Why is the US about to give away $52bn to corporations like Intel? Robert ReichThe Chips Act would provide an enormous subsidy to chipmakers for making their chips in the US. This is extortion Congress will soon put final touches on the Chips Act, which will provide more than $52bn to companies that design and make semiconductor chips.The subsidy is demanded by the biggest chipmakers as a condition for making more chips in America.It’s pure extortion.Fed chief vows to keep raising rates until ‘compelling evidence’ of falling inflationRead moreThe world’s biggest chipmaker (in terms of sales) is already an American corporation – Intel, based in Santa Clara, California.Intel hardly needs the money. Its revenue rose to $79bn last year. Its chief executive, Pat Gelsinger, got a total compensation package of $179m (which was 1,711 times larger than the average Intel employee).Intel designs, assembles, and tests its chips in China, Israel, Ireland, Malaysia, Costa Rica, and Vietnam, as well as in the US.The problem for the US is Intel is not helping America cope with its current shortage of chips by giving preference to producers in the United States. And it’s not keeping America on the cutting edge of new chip technologies.Obviously, Intel would like some of the $52bn Congress is about to throw at the semiconductor chip industry. But why exactly should Intel get the money?Among the other likely beneficiaries of the Chips Act will be GlobalFoundries, which currently makes chips in New York and Vermont – but in many other places around the world as well.GlobalFoundries isn’t even an American corporation. It’s a wholly owned subsidiary of Mubadala Investment Co.,the sovereign wealth fund of the United Arab Emirates.The nation where a chipmaker (or any other high-tech global corporation) is headquartered has less and less to do with where it designs and makes things.Which explains why every industry that can possibly be considered “critical” is now lobbying governments for subsidies, tax cuts, and regulatory exemptions, in return for designing and making stuff in that country.It’s a giant global shakedown.India, Japan and South Korea have all recently passed tax credits, subsidies and other incentives amounting to tens of billions of dollars for the semiconductor industry. The European Union is finalizing its own chips act with $30bn to $50bn in subsidies.Even China has extended tax and tariff exemptions and other measures aimed at upgrading chip design and production there.“Other countries around the globe … are making major investment in innovation and chip production,” says Senate majority leader Chuck Schumer. “If we don’t act quickly, we could lose tens of thousands of good-paying jobs to Europe.”But who is “we,” senator?John Neuffer, the chief executive of the Semiconductor Industry Association (the Washington lobbying arm of the semiconductor industry) warns that chipmaking facilities are often 25 to 50% cheaper to build in foreign countries than in the United States.Why is that? As he admits, it’s largely because of the incentives foreign countries have offered.As capital becomes ever more global and footloose, it’s easy for global corporations to play nations off against each other. As the then-chief executive of US-based ExxonMobil unabashedly stated: “I’m not a US company and I don’t make decisions based on what’s good for the US”People, by contrast, are rooted within nations, which gives them far less bargaining power.This asymmetry helps explain why Congress is ready to hand over $52bn to a highly profitable global industry but can’t come up with even $22.5bn the Biden administration says is necessary to cope with the ongoing public health crisis of Covid.If they are publicly owned, corporations must be loyal to their shareholders by maximizing the value of their shares. But over 40% of the shareholder value of American-based companies is owned by non-Americans.Besides, there’s no reason to suppose a company’s American owners will be happy to sacrifice investment returns for the good of the nation.The real question is what conditions the United States (or any other nation that subsidizes chipmakers) should place on receipt of such subsidies.It can’t be enough that chipmakers agree to produce more chips in the nation that’s subsidizing them, because chipmakers sell their chips to the highest bidders around the world regardless of where the chips are produced.If the US is going to subsidize them, it should demand chipmakers give highest priority to their American-based customers that use the chips in products made in the United States, by American workers.And Congress should demand they produce the highest value-added chipmaking in the US – design, design engineering, and high precision manufacturing – so Americans gain that technological expertise.What happens if every nation subsidizing chipmakers demands these for itself?Chipmakers will then have to choose. The extortion will then end.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
      TopicsUS newsOpinionUS economyUS politicsEconomicscommentReuse this content More

    • 113 Shares199 Views

      in US Politics

      Federal Reserve announces biggest interest rate hike since 1994

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      Federal Reserve announces biggest interest rate hike since 1994Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key items With soaring inflation and the shadow of recession hanging over the United States, the Federal Reserve announced a 0.75 percentage-point increase in interest rates on Wednesday – the largest hike since 1994.Until this week the Fed had been expected to announce a smaller increase. At a press conference, the Fed chair, Jerome Powell, said the central bank decided that a larger hike was needed after recent economic news, including last week’s announcement that inflation had risen to a 40-year high.He made clear that a similarly outsized rate rise should be expected at its next meeting in July unless price rises softened. “We at the Fed understand the hardship inflation is causing,” he said. “Inflation can’t go down until it flattens out. That’s what we’re looking to see.”The hike will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% and officials said they expected rates to rise to at least 3% this year.Powell acknowledged that the Fed’s attempt to cool spending is likely to lead to job losses. The Fed expects unemployment to rise to 4.1% from the current rate of 3.6% as it attempts to bring inflation back down to its target rate of 2%.“We never seek to put people out of work,” Powell said. But, he added: “You really cannot have the kind of labor market we want without price stability.”The rate rise came after more bad news on inflation late last week sent US stock markets into a tailspin, presenting the Fed and the Biden administration with an escalating crisis amid fears that runaway inflation has now spread through the economy.Over a third of US population urged to stay indoors amid record-breaking heatRead moreThe Fed cut rates to near zero at the start of the coronavirus pandemic, as the US and global economies effectively shut down. It increased rates for the first time since 2018 in March this year, but the increase did nothing to tamp down rising prices.Powell initially described rising prices as “transitory”, but has changed his view and says the Fed intends to aggressively increase rates in order to bring prices back under control. There are already signs that consumers are cutting back in the face of rising inflation. Retail spending fell for the first time this year in May, the commerce department said on Wednesday. Home sales have fallen for three consecutive months and consumer confidence hit a record low between May and June.Last week the labor department announced consumer prices were 8.6% higher in May than they were a year ago. The increase was broad-based, with food and fuel prices rising alongside rent, airfares and car prices.Across the country, consumers are being confronted by rising prices and shortages. Nationally, gas now costs an average of $5 per gallon, close to $2 higher than a year ago. In California, a gallon of gas now costs more than $6, up from just over $4 a year ago.Supply chain disruptions and other issues have led to shortages of basic necessities including tampons and baby formula.On Wednesday, Joe Biden summoned top oil executives to the White House to discuss ways they can “work with my administration to bring forward concrete, near-term solutions that address the crisis”.Biden’s handling of the inflation issue has battered his poll numbers. With crucial midterm elections, and control of Congress, coming up in November, Biden’s approval rating is 33%, according to Quinnipiac University’s national poll, equal to the lowest rating for his administration.Many parts of the economy remain strong and the Fed is aiming for a “soft landing” – hoping it can tame inflation by raising rates without sharply increasing the unemployment rate – but Powell acknowledged some risks, including the war in Ukraine, were beyond the influence of the Fed.Nearly 70% of the academic economists polled by the Financial Times and the University of Chicago’s Booth School of Business now believe the US economy will tip into a recession next year.TopicsFederal ReserveUS interest ratesUS economyInflationUS politicsBiden administrationEconomicsnewsReuse this content More