Unprecedented inflation in 40 years surprises the US and becomes a meme

Steven Carmin was surprised to receive a letter from the car dealership. Instead of offering new cars, the store wanted to buy back their vehicle.

“They wanted to pay more for my Toyota Corolla than I paid for it when I bought it in 2017,” says he, who is an economist and former director of international finance at the Fed, the US central bank.

Carmin studies the inflation situation in the US, which is experiencing an unprecedented moment in 40 years: the country ended 2021 with an annual rate of 7%, something not seen since 1982. Thus, the generation that reaches 30 years old now in the country spent their lives in a world with some stability in prices: annual inflation fluctuated in the range of 1.6% to 3.4% since 1991, and reached 4.1% only in 2007.

Gasoline, for example, has been below US$3 a gallon (3.6 liters) since 2015. Historically, the average price has never exceeded US$4. Now, it is around US$3.40, according to data from the Department of Energy.

The price of 1 pound (454 grams) of ground beef reached an average price of US$ 4.71 in November 2021, the highest value since the beginning of the historical series in 1984, according to data from the Department of Labor Statistics.

With the rise in prices, intensified throughout 2021, inflation itself became the subject of conversations, posts on social networks and jokes in the US, as it is something infrequent in the country. Two weeks ago, the New York Times published a story on inflation that resembles a headline on the “Globo Repórter” program: what it is, how it affects you and how to deal with the problem.

The main cause for the rise in prices is the effects of the pandemic: the stoppage of activities to contain the circulation of the virus, as well as the lack of workers who had to stay away because they were contaminated or who did not want to expose themselves to risks, generated a series of delays in the production and delivery of products, which have not yet been fully resolved.

The rise in car prices, for example, is the result of a lack of parts, especially chips. Most of them come from factories in Asia, in countries that have had strong waves of Covid.

“Inflation is a real problem, a lot of people are getting hit by it. But a third of inflation in America is a consequence of the price of automobiles,” President Joe Biden said in a speech on Friday. The average price of used cars has risen 36% in the last 12 months, according to Cargurus.

The Biden administration has been betting on several ways to fight inflation, such as trying to solve logistical bottlenecks in partnership with companies and stimulating competition. In the meat sector, for example, a program was launched to promote smaller slaughterhouses, in an attempt to change the concentration of the sector, currently dominated by four corporations.

At the same time, Biden advocates the approval of more social benefits for families, such as aid to pay day care, discounts on medicines and health plans. Thus, they would have more money for day-to-day expenses and could better face the rise in prices.

The Republican opposition, and even some Democrats, believe that this path carries risks: by giving people more money, they will consume more and, thus, stimulate higher prices if the supply of products cannot meet demand.

“Every dollar the government spends [em auxílios] it’s a dollar they have to tax the economy or raise debt to compensate, which ends up driving up prices and hurting families and businesses. The best way to fight inflation is to reduce government size and excessive regulations,” says Joel Griffith, an economics researcher associated with the Heritage Foundation think tank.

In the last year, Griffith has seen his house rent more than 30% higher, from $1,300 to $1,800. The US real estate market has heated up in the pandemic, as many people have decided to move in search of a better home office option or cheaper options away from big cities, which has driven up prices in the suburbs.

Karmin, on the other hand, believes that even the Build Back Better, a package of almost US$ 2 trillion in social benefits proposed by Biden that is locked in Congress, would not have a direct effect on inflation, since the expenditure, spread over ten years, would represent less than 1% of annual US GDP.

“The Biden administration could eliminate tariff hikes [de importação] created by Trump. In addition to helping to lower prices, this would improve our relations with other countries”, he suggests.

The economists heard by the leaf say that it is not yet possible to say whether the current inflation will be a passing wave or if it can last and have long-term consequences, but they show that there are signs for optimism, such as the fact that the Fed is more attentive to the issue now than it was in the past. crisis of the 1970s. The US central bank has already signaled that it intends to raise US interest rates this year to contain inflation as needed.

“We are cautiously optimistic that we will see some progress on inflation this year, but for that, a few things need to happen. One of them is to see progress in fighting the pandemic, perhaps as a result of global vaccination”, says Nathan Sheets, chief economist. Citi Research Global.

“In the next three or four months, there should be some improvement in maritime logistics, semiconductor production, automobiles and other things. But there is still a lot to do, and central banks will probably have to stay active”, adds Sheets.

While assessing the scenario, Karmin decided not to sell his car. “If I accept the dealership’s offer, I’d have to buy another one later. And then I’d have a problem.”