Economists say high inflation is largely not Biden or Trump’s fault | Real Time Headlines

inflation Slow down again In June, consumers’ wallet problems were further alleviated.

consumer price index Up 3% in June 2024 The Bureau of Labor Statistics said that starting in June 2023, the annual inflation rate will decline from 3.3% in May report Thursday.

While inflation has not yet fully returned to policymakers’ long-term target of around 2%, it has cooled significantly from around 9% two years ago, the highest level since 1981.

But why did inflation burst out in the first place?

first american presidential debate The last month saw two candidates—President Joe Biden and former president Donald Trump — blaming each other for inflation-related grievances during the pandemic.

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Trump: ‘He caused inflation’ explain Biden at the June 27 debate. “I gave him a country with no, essentially no inflation,” he added.

Biden countered that inflation was lower during Trump’s term because the economy was “underperforming.”

“He destroyed the economy, absolutely destroyed the economy,” Biden said.

But economists say the causes of inflation are not so clear-cut.

In fact, they say, Biden and Trump are responsible for much of the inflation consumers have experienced in recent years.

Likewise, the Covid-19 pandemic plunged the United States into a deep recession under Trump, driving the consumer price index down to close to zero In the spring of 2020, unemployment surged and consumers cut back on spending.

“In my opinion, neither Trump nor Biden is responsible for the high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s down to the pandemic and Russia’s war in Ukraine.”

China close factory and cargo ship Unable to uninstall For example, in ports, the supply of goods is reduced.

At the same time, consumers have changed their purchasing patterns.

As they spend more time indoors, they’re buying more physical items, such as living room furniture and desks for home offices — a departure from pre-pandemic norms, when Americans tended to Spend more money on services Examples include dining out, traveling, movies and concerts.

Strong demand as the U.S. economy fully reopens, combined with shortages of goods, has led to higher prices.

There are other relevant factors.

For example, Wessel said, automakers didn’t have enough semiconductor wafers to build cars, while rental car companies sold off their fleets because they didn’t think the recession would be short-lived, which lowered rental prices when the economy rebounded quickly. higher.

Just like COVID-19 cases record high Zandi said that entering 2022, Russia’s war in Ukraine has further disrupted supply chains and pushed up global prices of commodities such as oil and food, thereby “exacerbating inflation.”

As a result, global inflation reached “the highest levels in decades,” the International Monetary Fund wrote in October 2022.

“We only have to look at the still-high inflation rates in most other developed economies to see that much of this period of inflation is actually related to global trends… rather than specific policy actions by any particular government. (although of course they do play a role),” Stephen Brown, deputy chief economist for North America at Capital Economics, wrote in an email.

For example, the American Rescue Plan— $1.9 trillion economic stimulus package Biden signed it in March 2021 — providing $1,400 stimulus checks, increased unemployment benefits and a larger child tax credit to families, among other relief measures.

Michael Strain, director of economic policy research at the American Enterprise Institute, a right-leaning think tank, said the policy has resulted in “some good things,” such as a strong job market and low unemployment.

But he said it was larger than the U.S. economy needed at the time, boosting prices by putting more money into consumers’ pockets and stimulating demand.

“I do think President Biden bears some responsibility for the inflation that we’ve experienced over the past few years,” Strain said.

He estimates the American Rescue Plan This will increase the underlying inflation rate by about 2 percentage points. The consumer price index peaked at 9.1% in June 2022, the highest level since 1981.

The Federal Reserve (U.S. central bank) aims to keep long-term inflation at around 2%.

“I think without the American Rescue Plan, the United States would still have inflation,” Strang added. “So I think it’s important not to exaggerate the situation.”

However, Zandi believes the inflationary impact of the ARP is “good” and “desirable,” returning the economy to the Fed’s long-term target inflation rate after a long period of below-average inflation.

Trump also approved two stimulus plans, March and December 2020worth about $3 trillion.

Wessel said these so-called fiscal policy responses are insurance against a bad economic recovery that could overshoot after years of a sluggish U.S. response to the Great Recession that plunged the country into high unemployment.

He said it may have been the presidents’ fault that the United States introduced too much stimulus, but “only hindsight will tell.”

Economists say Biden and Trump have also enacted other policies that could lead to higher prices.

For example, Trump levy tariffs Biden has left imports of steel, aluminum and several commodities from China largely unchanged. Biden also Set new import taxes Chinese goods such as electric vehicles and solar panels.

Central banks use interest rates to control inflation. increase rates Raising borrowing costs for businesses and consumerscooling the economy and thus inflation.

Economists say the Federal Reserve has raised interest rates to their highest level in about two decades but was initially slow to do so. It raised interest rates for the first time in March 2022, about a year after inflation began to surge.

It also waited too long to re-throttle”Quantitative easing”, Strahan said, referring to a bond-buying program aimed at stimulating economic activity.

“This is a mistake,” Zandi said of the Fed’s policy. “Given the circumstances, I don’t think anyone could have done it right, but in hindsight it was a mistake.”

Some observers have also pointed out the so-called greedy inflation This is a contributing factor as companies use claims of high inflation to raise prices beyond what is needed to boost profits.

Economists say this is unlikely to be the cause of inflation, although it may contribute slightly.

“If something like this happens – and I’m not sure it does – it will be a very small factor in our inflation,” Strain said. He estimated that this dynamic would increase inflation by less than 1 percentage point.

“Companies are always looking for opportunities to raise prices when possible,” Wessel said. “I think they took advantage of the inflationary climate, but I don’t think they caused the inflation.”