White House officials are not buying the argument that inflation has risen mostly because of Biden’s $1.9tn American Rescue Plan, say economists.

Steve Hanke

Steve Hanke, a professor of applied economics at the Johns Hopkins University in Baltimore, Maryland, shared an article on President Biden continuing to blame supply chain issues for US inflation, while ignoring the effects of the March $1.9tn Covid relief bill that monetised and spiked the money supply. Therefore, inflation is everywhere and is always a monetary phenomenon.

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Economists believe that efforts to boost economy’s supply side, such as in meat and shipping may underplay the bigger forces such as excess demand during the Covid-19 pandemic. Lately, some Democrats have been leaning on the microeconomic explanation, while adding a moral edge. For instance, Sen. Elizabeth Warren of Massachusetts Market stated that the market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins.

President Biden also blamed consolidation in the meat packing industry last week for the spike in meat prices, thereby announcing initiatives to boost independent meat processing. As a result, White House officials do not agree that businesses have suddenly got greedier or concentrated in the last two years of the pandemic, but argue that because of the widely documented, decades-long trend toward consolidation, companies could raise prices more when the pandemic hit, thereby disrupting supply.

Mark Dow

Mark Dow, a fiat enthusiast and a proprietary global macro trader, who worked as a policy economist at the US Treasury and the International Monetary Fund (IMF), retweeted an article shared by Matthew C Klein, an economics commentator at Barron’s and the founder of The Overshoot, on understanding Covid-flation. Klein argues that according to a new comprehensive decomposition of the changes in consumer prices since the Covid-19 pandemic began suggests that supply constraints in some industries are still the main source of the trouble.

He stated that if the prices of just a few specific items had increased at their pre-pandemic pace, instead of jumping by 50% or more, inflation in 2021 would have been remarkably close to the 1995-2019 average. Therefore, it can be concluded that most of the excess inflation has been caused by a handful of categories that are a small fraction of the total index.

He further added that the good news is that what happened last year was the convergence of several distinct forces largely driven by the Covid-19 pandemic. As the public health scenario improves and the economic shocks of the past two years fade, so will the rate of price increases.

Edward Harrison

Edward Harrison, senior editor at Bloomberg, shared an article on Eurasia Group’s prediction that China’s zero-Covid policy will fail to contain infection rates, leading to larger outbreaks, requiring in turn more severe lockdowns. Therefore, they have put it as the number one risk for 2022.

The newly dominant and highly transmissible Omicron variant is ravaging the developed world, but is being countered aggressively by robust vaccinations in adults and the rapid rollout of Covid-19 treatments and antivirals that are severely minimising the risk of hospitalisations and deaths. Experts thereby believe that the pandemic will become an endemic for advanced economies by the end of the quarter.

However, much of the world is expected to be suffering and not just because of the Omicron variant, state experts. For instance, China’s zero-Covid policy seems to be failing with the highly transmissible variant calling for broader lockdowns, and less effective vaccines. While the population has no antibodies against the Omicron, keeping the country locked down for two years has made it riskier to open it back up again.

China is likely to encounter greater economic disruptions, more state intervention, and a more dissatisfied population. Therefore, it is expected that only the roll out of domestically developed mRNA shots and boosters across the population by the end of the year will bring it back on pre-Covid paths.