Several countries around the world are grappling with inflation. The relaxation of COVID-19 restrictions has led to an increase in demand. The cost of goods has risen as a result of major supply chain issues combined with rising prices of energy and raw materials. The United States is experiencing one of the most dramatic spikes of inflation in the world.
Americans across the country who have begun their holiday shopping or who have visited grocery stores recently are experiencing sticker shock at the counter. In October, the annual rate of inflation in the U.S., as calculated by the Consumer Price Index (CPI), hit 6.2 percent. This is the highest rate in over 30 years.
Michael Gapen, chief U.S. economist at Barclays pointed out that demand for core services has not yet recovered. The consumption of core goods is currently 17 to 20 percent more than pre-pandemic levels. Food and energy do not constitute core goods.
“It’s like any economy in any situation would be in trouble if its citizens were requiring it to produce 20% more goods in one year’s time… It’s the greatest historical anomaly in the relationship between core goods and services prices that we’ve seen since the end of World War II,” Gapen told CNBC.
Pew Research Center conducted a study involving 46 nations and found that the inflation rate in the third quarter of 2021 was higher in most of the countries when compared with the pre-pandemic third quarter of 2019. At 5.3 percent, the annual inflation rate of the U.S. was the eighth highest.
Between the third quarter of 2019 and the third quarter of 2021, the U.S. inflation rate rose by 3.58 percent, the third-highest in the study group. Only Turkey and Brazil, which are struggling with considerably higher inflation rates, were ahead of the U.S.
The effects of inflation have been particularly harsh on low and middle-income Americans, since food prices across the country surged before Thanksgiving. The United Nations Food and Agriculture Organization (FAO) revealed that global food prices are reaching the highest rates in decades.
The prices of goods, such as natural gas and semiconductor chips, are also going uphill as bottlenecks in the supply chain are aggravating the issues. The global shortage of semiconductor chips will also drive the prices of new and used cars higher.
Inflation has become a political nightmare for President Joe Biden and his administration. Biden, who faces low approval ratings ahead of next year’s Congressional elections, is being held responsible for the economic downturn by many Americans.
By releasing oil reserves, adopting various measures to ease the supply chain constraints, and appointing Jerome Powell as chair of the Federal Reserve for the second term, addressing the increase in prices appears to be one of Biden’s top priorities.
A survey by polling company Gallup revealed that issues like inflation, unemployment, and the economy are the nation’s main problems according to 26 percent of Americans. Seven percent saw inflation as the nation’s most serious issue.
Treasury Secretary Janet Yellen, Powell, and Biden administration officials have said that the high inflation is temporary, instigated by the pandemic. However, many economic experts disagree and expect inflation to remain above two percent well into next year.