Should we be afraid of the return of inflation?
Audio 03:16
Jérôme Powell, head of the US Federal Reserve.
© Jim Lo Scalzo / AFP
By: Dominique Baillard Follow
7 min
The threat of widespread price hikes is agitating markets and economists.
Jérôme Powell, the boss of the Federal Reserve, sought yesterday to calm concerns.
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The widespread rise in prices is an old memory in the West.
We have almost forgotten this scourge which nibbled at incomes in the 1970s and impoverished households, faced with rising unemployment.
This uncontrolled outbreak is often fueled by the rise in raw materials.
In the twentieth century the spark had been the oil crisis.
Today, there is not much to fear on the crude side, as low consumption squeezes oil prices.
On the other hand, all other commodities saw their prices soar, whether agricultural or mining.
In the industry, there are even shortages of plastics or semiconductors that could push up the prices of finished products in the coming weeks.
This surge is real, but comparable increases have already occurred without waking up inflation.
Investors especially fear the inflationary effects of Joe Biden's massive plan to support the economy.
1
$ 900 billion that will be distributed to households or companies is too much?
1,900 billion in addition to the 3,700 billion spent by Donald Trump, is it really necessary, ask eminent economists?
Like the well-respected Larry Summers, a "
Keynesian
" that is to say rather favorable to public spending.
The former chief economist of the IMF, Frenchman Olivier Blanchard, agrees.
Why distribute so much money when the vaccination campaign should soon start to bear fruit?
So what are Americans saving very high?
This windfall, they explain, will promote frenzied consumption and therefore overheating.
When the demand for goods exceeds the available supply, prices explode.
The inflation mechanism is in place.
And what will be the consequences?
To control this exuberant increase, the Federal Reserve, the US central bank, will raise interest rates.
More expensive money is bad for Wall Street, which has been bathing for ten years in euphoria thanks to the money from stimulus plans, we understand why the Stock Exchange is feverish.
But it is above all a brake on the economy, the opposite of what is sought.
Finally, it is a worrying threat for the highly indebted countries which are quietly benefiting at the moment from negative rates, that is to say for European countries, because the rise in American rates is replicated on European markets.
It already started last week.
Jerome Powell, the chairman of the Federal Reserve tried yesterday to allay these fears
Speaking to the Senate, he especially insisted on the need to massively support the US economy.
To fight against unemployment, It is still his priority, he fully adheres to the Biden plan.
The rate hike is still a long way off.
No question of resorting to it as long as the rise in prices does not reach the 2% mark, at the moment inflation is well below, around 1.5%.
IN SHORT
Hong Kong announces $ 15 billion budget to exit recession
The island has been in crisis for two years, the pandemic has accentuated it, the GDP fell by 6% in 2020. The government provides direct aid to households.
The government is also announcing the start of the anti-covid-19 vaccination campaign.
In Europe, pharmaceutical giant AstraZeneca downgrades its production of anti-Covid-19 vaccine
It will manufacture on European soil only half of the doses it must provide to the Twenty-Seven for the second half of the year.
A new setback for European leaders.
They were very annoyed when the British-Swedish group announced that it could not deliver the doses planned for the first quarter for lack of sufficient production capacity in Europe.
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