Rising inflation is a global problem: the US political choice is not to blame

Main conclusions:

  • An international comparison of OECD countries shows that rising inflation is a global phenomenon, not just the United States.
  • This fact conclusively proves that the high inflation in the US was not caused by any unique US policy – not by the American bailout and other generous financial relief during the pandemic recession and recovery, nor by anything else focused on the US.
  • Some argue that the global rise in inflation means that many countries, including the US, have over-stimulated their economies and created excess aggregate demand. But this explanation is not supported by the data. Countries with larger declines in unemployment have not seen larger surges in inflation over the past 18 months.

June 2022 consumer price data showed another month of rapid inflation, with headline inflation up 9.1% year-on-year and core inflation (which excludes volatile energy and food prices) up 5.9%. This level of inflation has obviously become a major political issue this year. But, nevertheless, this issue has a political resonance, because. economic The fact is that the prevailing narrative that blames the Biden administration and its political decisions for causing inflation is deeply misleading.

This is not just an excuse to justify the Biden administration’s choice – how the recent inflationary outbreak is interpreted will have huge implications for policymakers’ responses. A loud chorus of economic analysts and influential politicians continuous selection the need for the Federal Reserve to keep raising interest rates sharply to slow growth and “curb” inflation. This approach risk dire consequences and threatens to reverse the astonishing political achievement of a full recovery of jobs from the pandemic downturn.

During the recession caused by COVID-19, the economy lost more than 22 million jobs. But by June 2022 (28 months later), the U.S. employment rate was on par with the last month before the pandemic (February 2020). Compare it with job growth after the Great Recession of 2008-2009, when it took more than six years (75 months) to restore just under 9 million lost jobs and reach pre-crisis employment levels. Much faster recovery from COVID-19 recession wash significantly controlled through a much more aggressive fiscal response.

This more aggressive fiscal response is often attributed to the inflationary spike over the past 18 months. The most compelling evidence that calls into question this interpretation is the comparison of inflation between the United States and a large set of other rich countries that have taken a wide range of fiscal responses. In spite of various fiscal responsess, core inflation accelerated rapidly in almost all of these countries. This means that today’s inflation No this is a unique US problem, and therefore not related to the necessary and effective economic policies that led to the rapid economic recovery that we are seeing today.

AT Figure A, we focus on core inflation (excluding energy and food prices) because this is widely considered the best target for macroeconomic stabilization decisions. Energy and food prices are not only volatile, they are also dependent on world markets, which means that their price changes carry very little information about whether the US economy is currently experiencing macroeconomic imbalances. It’s also useful to highlight core inflation because there are a lot of comments. declared that inflation in other advanced economies is overwhelmingly dependent on energy and food prices, and much less on underlying prices. This claim is not supported by the data in Figure A.

As shown in Figure A, all but one of the Organization for Economic Co-operation and Development (OECD) countries saw an acceleration in core inflation. More importantly, this international comparison tells us that the US is no exception in its experience of accelerating core inflation (one obvious outlier in this data, Turkey, is currently experiencing over 40% inflation and is not included in the figure). The US is at a higher rate of inflation, but far from the top and not much above the average (or even median) of all other OECD countries. The result of this figure is clear: the global phenomenon – the acceleration of inflation – requires a global explanation, and the “Biden policy” clearly does not provide this.

Accelerating inflation is global: Difference in core inflation from December 2020 to May 2022 compared to “normal” inflation 2 years before the pandemic.

Country Accelerating inflation
Japan -0.0016
NO 0.014173
European Championship 0.01475
NLD 0.01691
SRC 0.01806
FRA 0.018085
ITA 0.019159
Mexico 0.022772
DEU 0.023085
CALL 0.02426
especially 0.024595
KOR 0.026003
COLOR 0.027358
LUX 0.02815
ISR 0.0285
DNA 0.030457
AWT 0.031292
Median outside the US 0.031292
CAN 0.033041
Sweden 0.033199
FIN 0.033758
GBR 0.03608
IRL 0.036566
Average outside the US 0.036831
USA 0.038027
SVN 0.040865
ISL 0.042115
LVA 0.042944
PRT 0.051002
Hungarian 0.054954
EST 0.064302
FLOOR 0.065441
KHL 0.065947
LUT 0.069453
Gastrointestinal tract 0.076997
Czech 0.101539
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