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The US is heading for severe and persistent inflation

Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen reiterated once again that the high inflation in USA It is a “temporary phenomenon due to the rapid economic recovery and interest rates will remain at almost zero.”

Miami World / diariolasamericas

For his part, President Joe Biden affirms that “the economy is progressing successfully” and criticizes economists who speak of the enormous debt and the inflation.

In the month of June alone, increases in prices far outpaced the increase in retail sales. Consumers paid more in all categories: food (0.8%), restaurants and cafeterias (0.7%), durable goods such as appliances, furniture and vehicles (2.5%).

In Michigan, for example, the company General Motors (GM) announced that it will close its production of trucks due to the shortage of electronic semiconductors, news that reinforces the spiral of prices in new and used vehicles.

Retailers are expected to experience significant cost increases during the second half of 2021. Retailers are estimated to spend $ 223 billion more in the second half of the year, compared to 2020. An increase of 62%

By breaking down the increases figure, they will have to disburse an additional $ 12 billion to suppliers, $ 48 billion in additional salaries, and $ 163 billion in higher logistics costs. All of the above translates into a new wave of high prices. Consumers pay more for the same products and for fewer products.

Prices continue to rise

The vice president and general manager of retail sales for the Salesforce digital platform, Rob Garf, told CNBC that consumers should expect higher prices. “Retailers will take part of the load and consumers a good part,” Garf said.

The Consumer Price Index (CPI) could end 2021 at 10%, a level similar to the 1970s, but in the current equivalent it would correspond to 15% or 20%.

Financial analysts like Wolf Richter say Jerome Powell’s temporary inflation is turning into an inflationary spiral, amid a notable shortage of raw materials and electronic components that lacerates the response to high demand. None of this favors the path to contain inflation

The Federal Reserve has injected trillions of dollars into the economy along with three large stimulus packages, with a high trade deficit and greater investments in social projects; a breeding ground for persistent excess liquidity that detracts from the dollar.

Inflation in the United States has skyrocketed in recent months, and the CPI rose 5.4% since June 2020, the highest level in 12 months since August 2008. Retail prices in June had their biggest rise in 13 years .

If the oil and gas categories, which are more volatile, are excluded, so-called core inflation increased 4.5% in the past year, the largest rise since November 1991.

The Biden administration could fall into a federal default

The fear that the Federal Reserve will act ahead of schedule and reform its policy with an increase in interest rates, gained more force after the announcement of the Republican minority leader in the Senate, Mitch McConnell, that he believes all Republicans will vote against renewing Washington’s ability to borrow money and raising the public debt ceiling.

The legal authority for the federal government to borrow more money expires July 31. If that power expires, the government could incur a federal default, something that has never happened.

Analysts explain that this would have a strong impact on the economy and the need to increase interest rates, lower the US credit rating and higher borrowing costs.

A rise in interest rates would curb inflation, but also the economic recovery because, among other negative impacts, sales in the real estate sector would drop notably, as would investments and the construction of new properties. Those two sectors have been the spearhead of the economy, before and during the pandemic.

For its part, a lower credit rating means a decrease in loans and foreign capital investments, two elements also vital at times of an alleged increase in cases of COVID-19 (delta variant) in the last two weeks in various regions of the country.

The scarcity does not end

Carlos Tavares, CEO of Stellantis, the world’s fourth-largest automaker, estimates that the crisis of electronic “chips” or semiconductors will continue in 2022, as there is no indication that Asian manufacturers are producing or exporting more.

The shortages have forced most auto companies to suspend production. As a consequence, there has been a shortage of vehicles for months, with an increase of more than 12% in prices and greater demand.

The median price of a new vehicle in the US hit a record $ 42,000 in June, according to the Kelley Blue Book. Just 10 years ago, that was the value of a luxury car from BMW, Mercedes Benz, VW, Lincoln or Cadilac.

In May alone, the average price of a used car increased 10.5%, something never seen since records began in January 1953.

The border crisis, restrictions on the oil industry, current regulations on international tourism, and dependence on China and other countries in that region have meant huge federal spending in times of recession.

Biden holds the record for spending in his first six months in office. No president in the history of the United States has disbursed as much money in a first semester in the White House as the current president has done.

The Fed and the Treasury downplay inflation and debt

The Treasury, the Federal Reserve and the Biden administration try to downplay the inflationary spiral facing the US, but the indices and the evolution of the economic stages are based on reality and measures that have proven their effectiveness in previous periods of American history.

Investors and economists have shown their distrust in the current economic strategy in Washington. On Monday, July 19, the star index of Wall Street, the Dow Jones Industrial lost 725 points, something that did not happen in 2020 at the height of the pandemic.

The plan to further increase the bulging $ 30 trillion debt, the delivery of cash to families with children, in addition to the previous stimulus packages, have flooded the dollar market without real productive support.

The US trade deficit remains at very high figures above 70,000 million dollars and companies have not been able to fill the 9.2 million job vacancies in the country, in the face of a growing demand for the reopening in the 2021 in states that still had strict regulations against COVID-19.

The climate priority at this time and the increase in social programs, the re-entry to international organizations to contribute large sums of money and other lines of the Biden platform do not constitute direct actions against inflation.

The idea of ​​”temporality” reiterated by federal institutions in this government (very similar to that of Barack Obama) is increasingly removed from reality and the obstacles facing the US economy.

lmorales@diariolasamericas.com

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