US ways to inflation, whether structured or temporary

US inflation is controversial. Everyone is wondering if it is an episode or if it is a phenomenon that will persist over time. To understand something more and to assess whether the phenomenon can be replicated in Europe, it is necessary to analyze its causes:

A change in the structure (not the volume) of the application

Almost 15 months of alternating lockdowns, with restaurants, travel and personal services closed or difficult to use even in the US, have led to a change in the structure of the non-superficial demand. Goods have replaced services, as we can see:

After 20 years of growth in services and a decline in goods, there has suddenly been a reversal at the extreme level, with an explosion in spending on goods and a collapse in services. But goods are not produced out of nothing: there are industrial bottlenecks, there are logistical problems. All of this causes flare-ups in prices that generate inflation.

The inventories of the companies were already at low levels, especially compared to the early 2000s, the flare-up of sales during the covid has accentuated them. This is the real cause of the various logistical crises we have heard about, such as that of containers and that of microchips: too much demand. The offer does not immediately adapt to the demand, it takes time, investment, commitment and in the meantime the prices rise. They will drop either with the redistribution of demand or with the increase in production capacity, so this effect is transitory, even if it can last for months. Furthermore, this effect will also move to the old continent and wherever this change has taken place.

Generous subsidies, fewer job offers (but that's not always bad)

Just today Biden announced his new family plan: $ 3,600 per low-income family per child. That's $ 300 per child per month, and that should cover 88% of US children and lift 5 million children out of poverty. A family with two children gets $ 600 a month, which is the equivalent of a week's work at $ 15 an hour. Added to this are the increases in unemployment benefits for Covid-19. A parent can work one week less a month, for example, or alternate child benefits, unemployment, and short-term work, and the family can go on with just one parent working full-time, indeed even without. if he also receives the subsidy.

The job offer is falling at a time when both manufacturing and services are increasing demand, the result is millions of unfulfilled job positions, therefore with supply restrictions (see above) and above all a positive wage dynamic after years of decline in personal income.

Now this is absolutely not bad because we will have a few tens of millions of Americans coming out of poverty, but it is a phenomenon that must be temporary and stop when the hourly wages have reached a level of decency. At that point it will be necessary to convince people to go back to work because a society where the state practically bribes people to get the votes is not healthy. This phenomenon has been generated much less in Europe where subsidies are temporary and have not replaced 100% lost income, just think of our Redundancy Fund which reaches 80% of income. So this phenomenon will not be there, or it will be very limited.

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The article The ways of the USA towards Inflation, whether structured or temporary, comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/le-vie-degli-usa-verso-linflazione-struttare-o-temporanea/ on Mon, 17 May 2021 16:11:53 +0000.