In the US, politicians are already suggesting that the only way to keep inflation under control is to intervene in the economy.
(Photo: Reuters)
If a recession is the lesser of two economic evils, then things are not looking good. In the US, ahead of the latest inflation figures, some monetary policymakers have suggested that the US Federal Reserve (Fed) will not bring prices under control without a significant dampening of economic activity. The new figure of 8.3 percent price increase in April compared to the same month last year confirms this.
Despite an intermittent fall in energy prices – which is now over – and despite a statistical base effect, the figure was little lower than a month ago at 8.5 percent.
Although the month-on-month comparison showed a slowdown, this was mainly due to the fluctuations in energy prices; outside of this range, momentum has increased. At the same time, the statistics make it clear that the price trend has spread to all areas of the US economy.
Should the Fed have switched to anti-inflation sooner? Probably. But even that would not have changed the fact that the price increase is largely due to a shortage in supply. In other words, an earlier reaction might have led to an earlier but milder recession. The basic problem is that there is not enough supply in the USA.
Top jobs of the day
Find the best jobs now and
be notified by email.
Because the Fed cannot increase supply, it has to choke off demand to prevent inflation from becoming permanent, i.e. continuing to run on its own accord. At the same time, there is a redistribution of the burdens that ultimately stem from the corona pandemic and the war in Europe: inflation hits all consumers, recession hits much more concentrated those who are losing their jobs.
>>> Read also: US monetary authorities: Fed does not have to act “more aggressively” on interest rates than recently
The political danger arising from this scenario is great. The high prices are likely to continue until autumn, when the midterm elections for the House of Representatives and the Senate are due. After that, the Fed will hopefully get a grip on prices, but unfortunately will probably produce a recession.
Europe must become more independent
If it takes a long time and is painful, it will play a role in the coming presidential elections, in which Donald Trump is likely to run again. The Russian attack on Ukraine and Western democracy at the same time has shown how important the USA is as an ally.
But Trump and much of Republicans have shown that they value power over democracy. Even if one does not fear the worst scenario: Europe must learn to stand on its own two feet.
More: Inflation in the US at 8.3 percent – “American living standards are eroding”