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May 5, 2021

How inflation puts US economy on track to hit pre-pandemic levels by Q4

By Paul Dennis

5 May

Brad DeLong, professor of economics at the University of California, shared an article on concerns over inflation in the US.

The US economy grew at an annualised rate of 4.3% in the fourth quarter and 6.4% in the first quarter of this year, indicating that it is on track to recovery.

The economy is expected to return to pre-pandemic levels by the third of fourth quarter of the year.

Core inflation excluding food and energy prices also rose by 0.4 percentage points in line with the GDP growth over the past month.

The core inflation rate over the past 12 months was 2.3%, which is in line with the US Federal Reserve’s target of 2%-2.5% and is expected to remain around the target.

Further, the US economy is emerging from the pandemic leading to an altered inter-sectoral balance.

For example, expenditure on durable goods accounts is 1.7 percentage points above  2019 levels, similarly housing construction in 0.5 percentage points above 2019 levels.

However, consumer spending on energy and services was 0.5 points and 2.2 points below 2019 levels, respectively.

The sectoral dynamics are expected to play a key role in inflation even as 4% of workers are expected to move to new jobs in different sectors by the end of the year.

The impact of this reshuffling on inflation remains uncertain, but a rise in inflation is not a major concern as price increases are an essential part of rebalancing the economy.

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