Since 2022, inflation in major economies has begun to rise, rising at an astonishing rate and spreading rapidly to the whole world. After the Russia-Ukraine conflict, global high inflation has worsened, and prices in most economies have hit record highs one after another.
Looking at the past three years, the U.S. CPI rose from 2.5% at the end of January 2020 to 6.4% at the end of January 2023, and reached 9.1% at the end of June 2022, the highest since November 1981, a 40-year high. In the past three years, the high CPI value has brought huge challenges to economic development.
Worse than America is Europe. Entering 2023, Europe is still mired in a severe economic winter. Energy crisis, high inflation, shrinking manufacturing industry and other multiple pressures have cast a shadow on the prospect of European economic recovery.
A world-wide inflation may have arrived, which is not a happy thing for everyone. Experts predict that this inflation will last until at least 2025, and ordinary people may need to persist for a while.
“Fever” does not subside
The “high fever” of US inflation continues. The U.S. Bureau of Labor Statistics’ Consumer Price Index showed retail food prices rose 0.3% in February 2023 from January and 10.2% from February last year. Prices for restaurant meals rose 0.6 percent from January to February and were up 8.4 percent from February last year.
In New York City, where prices for on-the-go staples such as pretzels, eggs with bacon, cheese sandwiches, canned soda and coffee have soared, the price of eggs has soared nearly fivefold to $158 a case from $27 earlier this year. The classic cheap food “dirty water hot dog” has also increased from $2 to $3 each.
”We had to increase the price of 90% of our products.” said Ajib, who runs a deli in the Pollan Hills neighborhood of Brooklyn. “All costs have gone up.
” Aker’s Deli also raised the price of its deli sandwiches by $1, an increase that angered some customers, said Ali Mohammad, the store’s manager. A customer was so annoyed at paying an extra dollar that a honey-smeared turkey sandwich was thrown in his face.
More than a third of U.S. adults say their fragile financial situation is stressing them out, according to a March poll, with the impact of high inflation particularly worrisome. Across income groups, about three-quarters of U.S. adults said their households are spending more now than they did a year ago. “Drugs are expensive, as are groceries, and no one dares to splurge money.”
High inflation, especially for low-income earners, has hit harder. According to calculations by financial and economic intelligence provider Moody’s Analytics, in September 2022, American households will need to pay an average of $445 more to purchase the same goods and services as they did a year ago. High inflation has led to rising prices of necessities in the United States, and low-income families cannot even afford to raise children. According to a survey by the American mother and child website “Baby Center”, American parents spend at least US$16,000 (about RMB 116,000) in the first year of a baby’s life. However, many low-income families earn as little as $500 a month, and they have been hit particularly hard by soaring prices for baby and toddler supplies. Faced with rising living costs brought about by high inflation, the financial situation of the American people is deteriorating, and many Americans say that the situation in 2023 will be even worse.
More than a third of U.S. adults say they are stressed by their fragile financial situation, with the impact of high inflation particularly worrisome.
Sun Lixing, director of the International Investment Research Office of the Institute of World Economics of the Shanghai Academy of Social Sciences, said in an interview with “Xinmin Weekly” that there is a strong correlation between monetary easing in the United States and high inflation. After March 2020, the monetary policy was super loose. The Federal Reserve not only directly cut interest rates to zero, especially its unprecedented “money printing” to stimulate the economy hit by the epidemic, which made the total assets of the Fed’s balance sheet in just two years. From about $4 trillion to as high as $9 trillion. “Theoretically speaking, high-intensity fiscal stimulus stimulates consumer demand, promotes commodity prices, pushes up inflation, and then pushes up inflation expectations, which will eventually push up inflationary expansion in a spiral.” Sun Lixing pointed out that the other reason for the high inflation in the United
States An important reason is that since the middle of 2021, the rapid recovery of the U.S. economy, the resumption of work and production of factories, and the early retirement of a large number of workers have combined to create an unprecedented demand for workers in the labor market, and the probability of workers resigning and looking for new jobs also increased accordingly.
”The structural mismatch between labor supply and demand has given employees more bargaining power, and workers have increased bargaining power in negotiating salary increases. In order to make up for rising wage costs, companies will choose to raise prices, pass the costs on to consumers, and raise prices. Commodity price level. At the same time, the increase in wages stimulates overall consumption, which in turn boosts factory demand for labor, further promoting the rise in wages and commodity prices. The spiral upward pattern coupled with continued loose fiscal and monetary policies strongly supports inflation continued. This is especially true in labour-intensive industries such as hotels and restaurants.”
America’s dilemma
In order to alleviate the severe inflation situation, the Federal Reserve has raised interest rates 8 times since the official start of the current round of interest rate hike cycle in March 2022, with a total of 450 basis points of interest rate hikes, finally allowing high inflation to enter a slow decline channel. In February of this year, the annual inflation rate across the United States has dropped to 6%. Although it is still three times the Fed’s 2% target, it has finally shown the effect of raising interest rates to fight inflation. The outside world’s expectations for the Fed’s interest rate hikes have become more tenacious.
Until early March, Treasury Secretary Yellen said that reducing inflation was the top priority of the Biden administration.
On March 10, the “violent” interest rate hike by the Federal Reserve led to the “speed of light” collapse of Silicon Valley Bank, which ranked 16th in the United States, within 48 hours. Based on the assets of 209 billion US dollars before the collapse, Silicon Valley Bank created the second largest bank in the history of the United States. The bank failure is also the largest failure of the US financial industry since the financial crisis. Within a week, three banks, including Silicon Valley Bank, collapsed, which immediately aroused the confidence of the American people in the banking industry, accelerated the flight of funds, frequent “stampede” incidents in the banking industry, and systemic risks in the financial industry were imminent.
On the road of fighting inflation, the urgent task of maintaining the stability of the financial system is superimposed. The Fed has to constantly weigh between fighting inflation, preventing risks, and stabilizing growth.
On March 23, under the double attack of high inflation and the banking crisis, the Federal Reserve announced that it would raise the target range of the federal funds rate by 25 basis points. This is the ninth consecutive interest rate hike since the Fed raised interest rates for the first time in March last year. The current target range of the federal funds rate has been raised to a target range of 4.75% to 5%, and the interest rate has risen to the highest level since October 2007.
