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January 24, 2022

Macro view: Covid stimulus drives rapid inflation in US

Macro view: A majority of economists believe that stimulus-spurred consumer buying is a big part of the reason US inflation is at a 40-year high.

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Jeanna Smialek

Jeanna Smialek, a federal reserve and economy reporter at the New York Times, retweeted an article shared by Ana Swanson, a trade and international economics reporter for the New York Times, on whether the Covid-19 pandemic and related factors or US policy choices is to blame for the rapid rise in inflation. Despite White House officials claiming that inflation is worldwide and primarily caused by supply chain issues caused by the pandemic, economists believe that the Covid-19 stimulus is also to blame for the uptick in prices in the US.

White House officials have been constantly blaming international factors for high inflation, such as factory shutdowns in Asia and overtaxed shipping routes that are leading to shortages and pushing up prices globally during the pandemic. The officials have also pointed at high inflation in other economies such as the euro area, where prices are rising at record pace, to justify that the entire world is experiencing the price pain, thereby deflecting the blame away from US policy.

While economists do agree that prices are rising due to shutdowns and supply chain disruptions caused by the pandemic, they also believe that America’s decision to flood the economy with the stimulus money has sent consumer spending into overuse, aggravating the global trends.

Abdullah El-Kuwaiz

Abdullah El-Kuwaiz, an economist, diplomat, banker, and the first deputy of the governing board of Oxford Institute of Energy Studies, an independent entity of Oxford University, shared an article on GDP growth across the G20 major world economies having accelerated in the third quarter of 2021, but half remained below pre-Covid levels, according to the Organisation for Economic Co-operation and Development (OECD).

El-Kuwaiz tweeted that India, Saudi Arabia and France led GDP growth in 2021, with India and Turkey reporting strong GDP growth in the third quarter of 2021. However, countries such as China, Australia, and Japan, witnessed their GDP to slow down or fall during the pandemic months. The OECD maintained that India enjoyed 12.7% growth in its GDP in the third quarter of 2021, the value added by the country’s production of goods and services, mainly driven by fixed investment and private consumption, compared to a contraction of 11.6% in 2020.

The rapid spread of the Omicron variant is expected to lower growth projections from the International Monetary Fund (IMF) on 25 January 2022, while confirmed Covid-19 cases have expected to surpass 307.1 million worldwide. While rising cases have been reported from countries such as the US, Japan, Australia, and Mexico, new restrictions are gradually being implemented across India and China.

The IMF had earlier warned in December 2021 that low- and lower-middle-income countries are facing serious challenges in vaccine deployment. In addition, less than 5% of the population in low-income countries were fully vaccinated, and about 30% in lower-middle-income countries.

Dean Baker

Dean Baker, senior economist at the Centre for Economic and Policy Research (CEPR), shared an article on life being bleak for workers on the eve of the Covid-19 pandemic. Baker tweeted that if it is tough for workers to survive today due to high inflation in the US, how did they manage to survive two years ago, in December 2019, when real wages for a majority of workers were lower.

Interviews with more than a dozen of workers in the country revealed that despite pay hikes, as much as 33%, in some cases, workers were still struggling to cover basic expenses. Several workers stated that they had taken second jobs to meet the rising costs of gas, rent, and groceries. Others also stated that their budget loans will be even more strained once student loan payments resume in May.  

According to the Bureau of Labour statistics data featured in a Washington Post article, real wages rose between December 2019 and 2021 in all but three industries, construction, manufacturing, and mining and logging. Together, these industries accounted for just over 14% of the total employment. While workers in these sectors saw a drop in real wages during the pandemic, workers in all other sectors on average have higher real wages today than they did two years ago. In many cases the real wage is substantially higher.

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Free Report
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Navigate your business through the ‘new normal’

COVID-19 continues to dominate headlines the world over. It has already affected our lives forever. The way we work, shop, eat, seek medical advice, and socialize will all be different in the future. Quite how different remains to be seen, but all industries must plan for multiple eventualities.  Faced with an explosion of conflicting information on how to plan and implement successful recovery strategies, decision-makers are in dire need of a single, reliable source of intelligence.   GlobalData’s COVID-19 Executive Briefing gives you access to unparalleled data and insights to successfully navigate the uncertain road to recovery across the world’s largest industries. Understand every aspect of this disruptive theme by delving into: 
  •  COVID-19 infection update, with statistics on the spread, testing by country, as well as the latest data on vaccines and therapeutic developments 
  • Economic impact overview, covering stock market indices, GDP, unemployment rates, policy responses & GlobalData’s economic recovery scorecards 
  • Sector developments, with access to sector insight summaries, cross-sector indices and the leaders and laggards in each industry vertical 
Whatever your company’s imminent strategic plans, the long-lasting impact of COVID-19 must not be overlooked. Find out how to futureproof your business operations – download our report today. 
by GlobalData
Enter your details here to receive your free Report.

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