As an uneven economic reopening leaves Americans confronting the unfamiliar prospect of inflation, widespread shortages and production bottlenecks are driving up costs for many basic commodities.
According to government data, significant price rises have occurred in used automobiles, medical services, appliances, energy, food, and cigarettes in recent months.
When the Labor Department releases its latest monthly inflation report on Wednesday, most economists expect prices for many products and services to continue rising.
The Federal Reserve is adamant that today’s growing prices, up 2.6 percent in the last year, will not erupt into anything resembling the 1970s’ economy-wide, double-digit inflationary spiral.
The US economy is roaring ahead, fueled by government stimulus checks and pent-up consumer demand. However, many businesses have not adjusted to the pandemic’s reshaping of demand, which means that some factories will be unable to meet all potential clients.
Once the spread is under control, the economy may surprise us.
The result of national lockdowns is self-evident: if none of us can go to work, economic activity comes to a halt. We are witnessing one of the most significant economic shocks in the last 100 years. This is not your typical shock. This is the fastest GDP decline in history.
The Central Banks’ and Governments’ Roles
Central banks are being blunt and aggressive, reintroducing massive amounts of quantitative easing (under different names). And this is only the beginning. Market interventions can assist ensure liquidity and avert asset price collapses. To alleviate the shortage of US dollars, international central banks have agreed to swaps that allow central banks all over the world to obtain dollars from the US Federal Reserve, so keeping, in this case, international financial markets afloat.
How Do We Return to Normalcy?
The health perspective must be examined first before addressing any type of economic recovery. Once our healthcare systems are under control, certain infections may occur, but they will be controllable. We need to adopt a mindset that restores our sense of control. We can keep the strategy of gradually opening the economy as long as we feel in control.
