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Explainer-Republicans blame Biden for inflation, but are they right?

By David Morgan

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Explainer-Republicans blame Biden for inflation, but are they right?
© Reuters. FILE PHOTO: U.S. President Joe Biden delivers remarks on the state of his American Rescue Plan from the State Dining Room at the White House in Washington, D.C., U.S., May 5, 2021. REUTERS/Jonathan Ernst

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By David Morgan

WASHINGTON (Reuters) – While Democrats struggle to pass President Joe Biden’s social and climate change agenda, Republicans have been pelting them with the repeated accusation that his policy initiatives are driving up inflation and making life costlier for Americans.

The U.S. consumer price index has risen at more than a 5% annual rate for four months in a row, while the economy suffers from labor and supply shortages caused by the COVID-19 pandemic. Treasury Secretary Janet Yellen predicted late last month that inflation would remain high into next year.

“There’s no relief in sight. It’s a direct result of flooding the country with money,” Senate Minority Leader Mitch McConnell, the chamber’s top Republican, told reporters last week. “The last thing we need to do is pile on with another massive, reckless tax and spending spree.”

McConnell spoke during a 13-minute news conference, during which he and his leadership team made at least two dozen references to inflation and rising costs or prices.

But are Republicans right to blame higher prices on Biden and the Democrats? Not entirely.

WHAT’S HAPPENING AROUND THE GLOBE?

The United States is hardly alone https://www.reuters.com/business/only-way-is-up-corporate-chiefs-warn-prices-2021-10-21 in enduring a bout of stiff inflation.

A headline measure tracked by the Organization for Economic Cooperation and Development shows inflation across the 38 member countries running at the highest level since 2008, lifted in no small part by the global surge in energy prices. Oil prices alone have quadrupled in the last 18 months as energy demand recovered with economies reopening from COVID-19 shutdowns.

(GRAPHIC: Global inflation perks up – https://graphics.reuters.com/USA-BIDEN/INFRASTRUCTURE-INFLATION/xmvjolwagpr/chart.png)

WHAT ABOUT STIMULUS SPENDING?

The main Republican argument against Biden is that his multitrillion-dollar legislative agenda makes inflation worse by flooding the economy with government spending, and promising much more.

His agenda includes the $1.9 trillion American Rescue Plan https://www.reuters.com/article/us-health-coronavirus-biden/biden-all-u-s-adults-to-be-eligible-for-vaccines-by-may-some-normalcy-coming-by-summer-idUSKBN2B31DN – the only plank so far enacted – and a yet-to-pass $1 trillion infrastructure bill. After that will come his “Build Back Better https://www.reuters.com/world/us/schumer-manchin-continuing-talks-with-biden-delaware-source-2021-10-24” social and climate spending package, which is anticipated to cost around $1.75 trillion.

But the annual inflation rates for dozens and dozens of goods routinely purchased by American households – including food – were already at their highest levels in a decade before Biden entered the White House early this year.

That’s in large part because of the COVID-19 relief spending enacted under Republican Donald Trump’s administration with overwhelming Republican support in the Senate. It exceeds what Democrats have allocated so far by roughly $1 trillion.

That money kept household balance sheets intact during the crisis and allowed consumers to keep spending despite double-digit unemployment. Moreover, household savings rocketed to unprecedented levels, providing tinder for more spending on activities like dining out and travel once those became widely available again.

(GRAPHIC: Key inflation gauges started rising in 2020 – https://graphics.reuters.com/USA-BIDEN/INFRASTRUCTURE-INFLATION/dwvkramxxpm/chart.png)

Republicans point to concerns raised by former Treasury Secretary Larry Summers, a Democrat who warned in a February Washington Post Op-Ed https://www.washingtonpost.com/opinions/2021/02/04/larry-summers-biden-covid-stimulus that Biden’s American Rescue Plan could fuel inflation. But other economists, including Mark Zandi of Moody’s (NYSE:) Analytics https://www.moodysanalytics.com/-/media/article/2021/macroeconomic-consequences-infrastructure.pdf, have since said that the Biden agenda is more likely to lift the economy’s long-term growth prospects and ease inflation.

ARE VACCINE MANDATES DRIVING INFLATION?

Republicans claim Biden’s COVID-19 vaccine mandates https://www.reuters.com/world/us/biden-deliver-six-step-plan-covid-19-pandemic-2021-09-09 for most federal workers and for private businesses with more than 100 employees are exacerbating a national labor shortage at a time when inflationary pressures are affecting both wages https://www.reuters.com/business/us-economy-grew-modest-moderate-rate-feds-beige-book-2021-10-20 and prices.

It is true that employment and workforce growth have slowed in recent months and employers are struggling to find workers – there were 10.4 million job openings in August, near a record high.

But the deadline for complying with the vaccine mandate is still more than a month off, and no firm data exists to validate this assertion, though a number of large companies have begun voicing concerns about their ability to retain and hire workers because of it. Others, like United Airlines https://www.reuters.com/business/healthcare-pharmaceuticals/united-airlines-says-more-than-99-us-employees-have-been-vaccinated-2021-09-28, said they saw a surge in applications for employment after adopting vaccine mandates.

The mandates are aimed at protecting Americans from COVID-19, at a time when only 67% of the U.S. population has received at least one dose of a vaccine, according to the Reuters COVID-19 Vaccine Tracker https://graphics.reuters.com/world-coronavirus-tracker-and-maps/vaccination-rollout-and-access.

Republicans allege the mandates are forcing workers who refuse to be vaccinated out of the labor force.

While thousands of workers https://www.reuters.com/world/us/us-workers-face-layoffs-us-covid-19-vaccine-mandates-kick-2021-10-19 across the United States do face potential job losses, vaccine resistance is strongest in Republican-led states where it has been largely reinforced by Republican officials.

WHAT DID ENHANCED UNEMPLOYMENT BENEFITS DO?

Republicans argue that “exorbitant handouts https://www.foxbusiness.com/politics/fix-supply-chain-crisis-incentives-return-to-work-rep-hern-rep-harshbarger” from the federal government, including a $300 weekly federal pandemic unemployment benefit, also have contributed to the labor shortage and rise in inflation.

But those unemployment payments, which ended nationally in September, appear to have had limited impact on labor market participation. The mostly Republican-led states that blocked the payments added jobs in August at less than half the pace https://www.reuters.com/business/amid-covid-surge-states-that-cut-benefits-still-see-no-hiring-boost-2021-09-17 of other states that allowed the payments to flow.

WHAT EFFECT ARE SUPPLY-CHAIN WOES HAVING?

Republicans also want to blame Biden for the supply-chain shortage that has contributed to inflation.

But experts say the COVID-19 pandemic has disrupted every aspect of the global supply chain https://www.reuters.com/business/few-options-g7-trade-chiefs-alleviate-supply-pinch-2021-10-21, from manufacturing and transportation to logistics, and not only in the United States but worldwide, at a time when the pandemic has also sparked a buying spree. The problem is partly due to a decades-old business strategy that aims to keep inventories lean.

Economic Indicators

Italy says can exceed 3.1% growth target for 2022 despite energy prices

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© Reuters. FILE PHOTO: People walk along the Galleria Vittorio Emanuele II shopping mall in Milan, August 25, 2015. REUTERS/Flavio Lo Scalzo

ROME (Reuters) – Italy’s Treasury said the country’s economy could grow this year by at least as much as Rome’s official target of 3.1% set in April, despite the negative impact of surging energy prices.

Italy grew 0.1% in the first quarter from the previous three months, national statistics bureau ISTAT said last month, revising up a preliminary estimate of a 0.2% contraction.

This left Italy with so-called “carryover” growth of 2.6% this year, assuming gross domestic product was flat in the remaining three quarters, ISTAT said.

Announcing on Monday the bond issuance programme for the third quarter, the Treasury said it expected growth to accelerate in the second quarter, compared with the first three months.

This still makes it plausible to reach or exceed the 2022 growth target of 3.1%, it said in its debt issuance report.

Prime Minister Mario Draghi’s government in April revised down its 2022 economic growth forecast to 3.1% from a 4.7% projection made last September.

The government has budgeted since January more than 33 billion euros ($34.90 billion) to soften the impact of sky-high electricity, gas and petrol costs.

($1 = 0.9456 euros)

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Economic Indicators

French consumer confidence falls more than expected in June

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© Reuters. A woman shops at a fruit and vegetables shop in Paris, France, June 10, 2022. REUTERS/Sarah Meyssonnier

PARIS (Reuters) – French consumer confidence fell more than expected in June, hitting a near nine-year low as concerns about the economic outlook surged in the face of high inflation and political uncertainty, a survey showed on Tuesday.

The INSEE official statistics agency said its consumer confidence index fell to 82 in June from 85 in May and the lowest level since July 2013.

A Reuters poll of 14 economists had an average forecast of 84 with the lowest estimate for 83.

Although households’ concerns about future inflation remained well above the long-term average, they eased in June for the third month in a row.

However, household sentiment about the general economic outlook continued to worsen, falling to the lowest level since May 2020 when France was in the second month of its first and most strict COVID-19 lockdown.

While surging inflation has stressed households in recent months, France’s political situation has added to uncertainty about the economic outlook since President Emmanuel Macron’s party lost its ruling majority in legislative elections this month.

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Economic Indicators

Peru truckers, farmers to strike over fuel and fertilizer costs

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© Reuters. FILE PHOTO: People walk next to parked trucks during a national transportation strike against fuel prices, in Lima, Peru March 18, 2021. REUTERS/Angela Ponce/File Photo

By Marco Aquino

LIMA (Reuters) – Peru’s truckers and some farm groups will go on strike on Monday after failing to reach agreements with the government seeking measures to reduce the impact of steep global price rises of fuel and fertilizer, sector leaders said on Sunday.

Union leaders met on Friday and Saturday with government representatives, with demands including considering freight transport a “public service” that would reduce costs and curb competition from truckers from neighbor countries.

“We are firm in plans to strike with all our bases nationwide,” the leader of the heavy load haulage and drivers union Marlon Milla told radio station RPP. The union has 400,000 cargo transport units in 14 of the 25 regions of the country.

High global fuel prices linked to Russia’s invasion of Ukraine have stoked unrest in Peru, the world’s No. 2 copper producer, while shortages of fertilizer have raised fears over food supply with the government struggling to secure shipments.

The government of leftist President Pedro Castillo, who has seen his popularity tumble since taking office last year, has taken measures to curb the rising cost of living, but the annual inflation rate remains at around 8%, its highest level in 24 years.

Some farming unions also announced strikes on Monday, in protest at the rise in fertilizer prices and shortages.

Latin American leaders are grappling to bring down spiraling prices despite major interest rate hikes. Trucking protests over fuel costs have hit Argentina while Ecuador is being roiled by protests in part linked to gas prices. [L4N2YB27W]

“The dialogue has not been exhausted, we are in a permanent session of ministers to avoid protest,” Justice Minister Félix Chero told reporters on Sunday. The government is offering subsidies for road tolls and fertilizer costs.

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