Inflation spike adds stress to Biden’s economic plans
A larger-thanexpected spike in inflation is the latest headache for US President Joe Biden and his bid to use massive government spending to both revitalise and reshape the world’s largest economy.
The Labour Department on Wednesday reported consumer prices were 4.2 per cent higher last month than in April 2020, their biggest year-on-year increase since 2008 as the United States bounced back from the Covid-19 pandemic.
Washington policymakers had expected inflation to surge as the economy reopens following last year’s business restrictions to stop the virus, and the White House Council of Economic Advisers cast the spike as a predictable part of the recovery.
“Some of April’s price increase... reflects pandemic-induced supply chain pressures that are expected to be transitory’’, the council said on Twitter.
“Separately, part of the increase was due to a ‘normalisation’ in prices in some sectors that had been hard hit by the pandemic, as their prices continue to climb out of their pandemic low level.”
But analysts agreed the April jump was much higher than forecast, and sparked worries that the United States could see a sustained price spiral.
“This report does mean that the first part of the higher inflation story — the reopening spike — is real’’, Ian Shepherdson of Pantheon Macroeconomics said.
“It’s no longer a forecast, and further hefty increases are coming’’, though they may only last for a few months, he said.
The United States hasn’t seen sustained inflation for decades, but economists have for months predicted prices would jump after Covid-19 vaccines allow for the loosening of the pandemic’s unprecedented business restrictions.
Complicating the picture was Washington’s moves to support consumers and businesses over the past year by passing three costly rescue plans that, among other provisions, gave many Americans stimulus cheques totalling hundreds of dollars perperson.
Biden’s $1.9 trillion American Rescue Plan passed in March was the latest of these bills, but the Democratic president has proposed two other measures costing around $4 trillion and targeted at revitalising infrastructure and the US workforce.
The Republican opposition has condemned these proposals as wasteful, and Congressman Mike Waltz on Wednesday seized on the inflation numbers to accuse the Biden administration of wanting “to spend our way into a spiral of debt while our economy attempts to reopen.”