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New Inflation in America: the other side of the post covid-19 economy rebound.

The COVID-19 corresponding crisis led along with the resultant stock market crash and other impacts, a recession that followed the economic cycle peak in February 2020. The economy contracted 4.8 percent from January through March 2020, and the unemployment rate rose to 14.7 percent in April.

In order to counter the impact of the crisis, President Biden is laying an aggressive plan with the promise of helping to lessen the impact of the pandemic on families and decrease inequality in the medical system. The government wants to create jobs, by injecting cash into the economy to help rescue and recover businesses. As beneficial as this might seem, in the long term problems will arise, and we should start questioning whether wages will be able to adjust to offset inflation effects. Otherwise, purchasing power would be lost and the working class and family’s economy would be harmed.

With an average annual inflation rate of 1.6% in the last few years, this phenomenon is not common to Americans. As they get anxious to see the prices go back to normal levels, republicans warn that Biden’s administration’s infrastructure proposals would require even more money injection. This ambitious plan, in which $2 trillion will be destined to improve the nation’s infrastructure and start shifting to greener energies, will cause the inflation to last far longer than expected.

Behind the rampant inflation rate, there is a political debate that could affect next year’s election results. In this context, republicans are trying to inflict a wound on democrat’s performance and get back control of congress, saying that while cash injection increases families and working-class consumption, an out-of-control spending policy creates a tax hike on working classes. Furthermore, In order to finance the recovery plan, the administration will have to raise corporate taxes, leaving a negative impact on competitiveness and investment costs.

On the other hand, democrats answered by downplaying inflation effects as temporary and argued that it is caused by the bottleneck effect on the supply chain of some businesses affected by the pandemic. They are also trying to convey tranquility, by stating that the prices going up is one of the expected consequences of flipping the global economic light back on. This political party clings to the fact that the big majority of Americans won’t feel the impact of inflation, since the main industries affected by the crisis are air travel and accommodation, in which prices skyrocketed due to the sudden increase in demand.

People have an intrinsic understanding of the fact that spending money you don’t have will end up decreasing the value of US dollars. And while it’s been four decades since inflation was a politically potent issue, it can become one again in the short term. Leaving aside whose fault might it be, prices are capping the highest 12-month inflation increase since August 2008. The phenomenon is leaving a direct impact on acquisitive power, and it could also twist the results in the 2022 congress midterm elections.

Source:  The Guardian: Americans are paying more for gas, hotels, and cars – Will biden pay the price of inflation?

by Facu Mussi | Jan 6, 2022 | Uncategorized

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