In May 2022, inflation in the US rose to its highest rate since 1981. The Bureau of Labor Statistics released its May 2022 report on June 10th 2022 stating that inflation continued to rise in May, up to 8.6% from this time a year ago. The consumer price index rose 8.3% more than analysts had predicted. Steep increases in gas, food and shelter prices played a significant role. Food prices are up by 10.1% since the beginning of the year. On the account of inflation, real wages dipped in April, 2022 by 0.6%. This was despite hourly wages rising by 0.3% during the same period. The industries with the steepest price increase include air travel, dairy and used cars and trucks.
Joe Biden placed some of the blame of inflation and rising gas prices on Putin. He has even referred to it as Putin’s price hike. Biden has sought to show he recognises the pain that inflation is causing to American households but has struggled to find policy actions that might make a real difference. The president has stressed his belief that the power to curb inflation rests mainly with the Fed. The Bureau of Labour Statistics said that US inflation increased 7.9% before the war began setting a 40-year high. Inflation and gas prices have been on the rise even before the war. The inflation has not only affected gas prices but also the prices of food and rent since much of the transport of the foods and beverages and other things rely indirectly on fuel prices. Thus, there emerges a price hike throughout. Some have also referred to the inflation as an aftermath of the devastating effects of the pandemic. Since the economy was nearly shut down for two years, the demand for goods could not be met properly. When the economy was made to run again, the demand and supply couldn’t be balanced. However, there are steps being taken to counter this inflation. President Biden sanctioned the release from Strategic Petroleum Reserve earlier this year.
As the US continues to struggle with the inflation, there seems other concerning factors too. There is a distinct possibility of a recession setting in. The White House gave warnings of a recession. Recently, the US central bank took an aggressive measure to address skyrocketing prices. The Federal government launched its biggest interest rate hike in nearly three decades. This action may have aimed to reassure the public that economic analysts are concerned with the looming recession.
As the saying goes, “Whenever America sneezes, the world catches a cold”. It is not possible to escape a downturn in the world’s largest economy. Economic experts declare a recession when a country experiences a fall in GDP for two or more successive quarters. In this scenario, the economy struggles and the people lose work. Companies make fewer sales and a country’s overall economic output declines. It lasts for months or even years. Factors creating recession include sudden economic shocks, growing debt defaults, unchecked inflation, technological changes etc. The US accounts for 30% of the global GDP. If the US economy contracts more than anticipated, economic growth of the entire world starts to shrink. The global stock markets start reflecting the misery of the US economy. The global market will take a hit and there will be volatility in foreign exchange rates.
During the next two years, officials are forecasting a much weaker economy than was envisioned in March, 2022. They expect the unemployment rate to reach 3.7 percent by year’s end and 3.9 percent by the end of 2023.
Inflation and other topics are discussed at the Faculty of Commerce and Business Management at Amrapali Institute, Haldwani. Amrapali Educational Institute is a top ranked institute in Uttarakhand.