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Inflation in the United States skyrockets: what effects could it have in Latin America

Argentines have lived for decades with this phenomenon that is very strange in the United States: with the same money as last year, the supermarket cart looks much emptier. Everything is more expensive than in January of last year, especially food.

At a branch of the Giant chain, a 1.3-kilogram bag of apples costs $4.99, down 20% from last year. A tasty eye of ribeye of 0.45 kilos reaches 17.99 dollarsalmost 23% more. Gasoline also rose, services increased at a rapid pace. The same Argentine School, where compatriots send their children to continue linked to the country, increased enrollment by 6.8% this year.

The annual inflation rate in the United States soared in January to 7.5%five tenths above that of December, which further increases the pressure on the Federal Reserve (Fed) to raise the interest rate, a measure that could have an impact on emerging countries such as Argentina.

This is the biggest year-on-year increase since February 1982.as reported by the Bureau of Labor Statistics on Thursday, and is even above the predictions of most analysts, who expected a price increase of 7.3%.

A supermarket in Miami, Florida. AFP Photo

Prices

The spiral of inflation worries the Federal Reserve, which has already warned that possibly raise interest rates in March to stop the sharp rise in prices from the range between 0% and 0.25% that is currently.

Energy prices (including fuel, crude oil, electricity and natural gas) rose 0.9% in January, the same percentage by which food prices increased, according to the government report. Food 1% in the last month. Second-hand cars rose 1.5% and transport 1%.

“It is surprising how quickly inflation has skyrocketed by US standards, although it is not surprising that it has happened because many anticipated it. Printing money leads to inflation. It was a question of when and not if it would happen,” he told Clarion Carlos Vegh, Professor of International Economics at Johns Hopkins University and former World Bank Chief Economist for Latin America.

At a branch of the Giant chain, a 1.3-kilogram bag of apples costs .99, down 20% from last year.  AFP Photo

At a branch of the Giant chain, a 1.3-kilogram bag of apples costs $4.99, down 20% from last year. AFP Photo

economic stimulus plan in recession due to the pandemic, which provided millions in subsidies to affected sectors and injected cash into the pockets of all Americans, is one of the causes of inflation.

But other factors have also been added. such as the workforce affected by Omicron, the international increase in oil, the serious problems in the supply chains of products, the increased inspection of workers in agricultural fields, among others.

Vegh notes that Thursday’s announcement adds more pressure to the Fed. “Clearly, it will impact the Fed’s rate hike. And they could go up more than expected, maybe 1.75 or 2 points this year. Let’s not forget that the November elections are coming up and high inflation would hurt Democrats.”

Asked about how this increase in rates would affect emerging countries such as Argentina, Vegh pointed out: “We will see a well-known movie. The Fed raises rates, capital leaves emerging economies causing recession, inflation, and depreciation. And there the emerging countries have to raise their rates of interest to defend the exchange rate, which aggravates the recession”.

Act

The managing director of the International Monetary Fund, Kristalina Georgieva, had already warned days ago from the Davos forum about the consequences of the increase in Fed rates in indebted countries such as Argentina. “Act now!” he exclaimed. “If you have to extend maturities, please do so, if you have to make exchange corrections, now is the time to do it.”

The figures announced this Thursday put pressure not only on the Fed but also on President Joe Biden, who has plummeted popularity in an electoral year, with legislative elections in November. The unprecedented inflation is an issue that directly affects voters.

Biden tries to minimize the impact and predicted that inflation will moderate “substantially” later this year. “Today is a reminder that the pressure on the budget of American households is creating real difficulties to put food on the table, but there are also signs that we will succeed in overcoming this challenge,” he said.

The Republicans are on the offensive and see inflation as their weapon of attack for the elections. Senate Republican Leader Mitch McConnell blamed Democrats and his “liberal” policies by inflation and said it was because of the Biden stimulus plan approved by Congress last year, which injected $1.9 trillion into the economy to mitigate the effects of the pandemic.

PB

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