The perverse policy of inflation | Business | The USA Print


Last Monday, Eurostat, the European statistical office, published a preliminary calculation of inflation in the euro zone in March, and it was a surprise: 8.1% over the previous year, 0.8% -almost 10% in interannual rate— for the month. Europe’s measure of inflation does not exactly correspond to the US consumer price index, and when a comparable measure is used, the US CPI has generally been even higher. But bad news about inflation in Europe is accompanied by slightly good, or at least better, news in the United States, so at this point, Europe has an inflation problem as bad or worse than ours. .

It is true that some economists argue that the problem of inflation in the United States is of a more fundamental nature than that of Europe. I’ll get to that right away. But here’s the thing: Voters don’t care about economists’ calculations of core inflation; they care about the prices they pay and, above all, the prices of the most important goods they regularly buy. In other words, the voters do not say: “The corrected average inflation is too high because the fiscal policy was too expansionary”. What they say is: “Gasoline and food were cheap, and now they are up.”

And there is a lot of truth in that complaint. But the lesson from the bad data in Europe is that these are precisely the prices over which President Joe Biden, or indeed any president, has virtually no control. Take the case of prices at the pump. Gasoline prices in the United States have more than doubled during Biden’s tenure. Until last week they were about $2.40 more than in the last week of December 2020. But in Europe they have risen almost exactly the same.

This shared rise in prices is not accidental: oil is traded on world markets, so its price has risen more or less equally everywhere. The same can be said of the main foods.

So when people say—and say—that gas and groceries were cheaper when Donald Trump was in office, what do you imagine you could do or would be doing to keep them cheaper if you were still in office? position? Okay, it probably wouldn’t have helped Ukraine, it’s even possible that it would have tacitly supported Putin’s invasion, and if the Russian flag were flying in kyiv now, world fuel and food prices would be a little lower than they are. But I don’t think buying lower inflation at the cost of Ukraine’s freedom is what Trump supporters have in mind.

Does this mean that Biden and US policymakers bear no responsibility? No. While much of the price rise reflects the global food and energy crises, plus special shocks related to the pandemic—who knew that second-hand car prices could play such an important role?—the United States probably has an annualized core inflation rate of between 3.5% and 4%, above the 2% norm. This underlying inflation is surely a reflection of an economy running at an unsustainable pace, which in turn reflects in part an excessive fiscal package early in the Biden presidency and the Fed’s (and mine’s) inability to recognize the problem on time.

He knows in depth all the sides of the coin.


On the other hand, overheating is not unique to the United States. Although some economists believe that European inflation is due almost exclusively to temporary shocks—something that many people, including myself, thought wrongly about the United States a year ago—my reading of the latest European data indicates that inflation has risen there as well. despite not having applied a fiscal expansion like that of the United States. In particular, in Europe prices, excluding energy and food, rose by 3.8% last year.

In any case, as I have already pointed out, voters are not about to punish the Democrats for underlying inflation. They are angry about gas and food prices that no rational analysis would conclude are Biden’s fault. So what can Biden do? From the economic point of view, the most important thing is his promise not to lean on the Federal Reserve, in order to allow it to do what it must to cool the economy.

And what about the abuses of companies when it comes to prices? I identify much more than most economists with the idea – very widespread in the public opinion – that some companies are taking advantage of the general rise in prices to get even more out of their monopoly power. And I don’t think things like prosecuting these abuses will do any harm, as long as the Fed is allowed to do its job; might even be of some help. But abuse is probably a minor factor in overall inflation.

So should Biden officials show the public that the price gouging that most annoys consumers is a global phenomenon, not a consequence of US policy? Yes, of course, among other things because it is true. And I hope the media will do the same.

But there is no doubt that the old saying “he who gives explanations has to lose” is to the point. Democrats may be able to mitigate the damage caused by inflation, but realistically, they won’t be able to win the kitchen table argument between now and November. For now, they have to focus on social issues and the threat that the current Republican Party poses to democracy and basic American values.

Paul Krugman He is a Nobel laureate in economics. © The New York Times, 2022. Translation of News Clips

Exclusive content for subscribers

read without limits


Please enter your comment!
Please enter your name here