US inflation result of its policy choices

Inflation rose for the 17th straight month in the United States in October, with the consumer price index rising 6.2 percent from a year earlier, the fastest pace since December 1990. Even after the volatile food and energy prices are stripped out, the CPI still rose 4.6 percent.

Persistent inflationary pressure comes from the shortage of energy, rents and workers.

In September, 4.4 million people quit their jobs in the US, a record high, and there were 10.4 million job openings in the country that month.

The Joe Biden administration's restrictions on the supply of oil in the US also affects the balance of supply and demand. Under the constraints of climate policies, the US cannot dominate energy prices in the short term.

Meanwhile, house prices in the US are growing at a rate of nearly 20 percent each year, because of the Federal Reserve's monthly purchase of a large amount of mortgage-backed bonds, so that the mortgage rates are artificially suppressed, stimulating a lot of people to buy houses, driving a rise in house price and rents.

At the same time the pandemic is reducing labor force participation and pushing up wages, creating an inflationary spiral. As the US' economic recovery has created concentrated demand for workers, employees are taking the initiative to resign or demand higher wages.

So the soaring inflation in the US is an inevitable result of the country's long reliance on easy monetary stimulus and its long neglect of income distribution. Unfortunately, the current US administration is likely to intensify these trends rather than end them.

Biden is choosing candidates for the chair of the Federal Reserve as the current chairperson's term will end in February. And the president has made public his policy preference, which is that easy money can help boost the US economy and stock market.

The US has just passed a $1.2 trillion infrastructure bill, and is pushing through a $1.75 trillion social spending bill. These two expenditures will provide more jobs and social benefits, which are likely to exacerbate supply and demand tensions in the labor market and push up wages sharply. Given increased protectionism in areas such as steel and restrictions on oil production, inflation in the US is likely to persist for a long time.

21ST CENTURY BUSINESS HERALD