Move on, there is nothing to see: many economists have for a long time brushed aside the risk of an overheating of the American economy which would trigger an inflationary spiral, force the Federal Reserve (FED) to tighten abruptly its monetary policy, even if it means causing a recession. A position more and more difficult to hold today … The American economy has indeed been put under strain for months by an explosive cocktail. The hundreds of billions of dollars poured into the US economy by Joe Biden and his White House predecessor Donald Trump have boosted demand. The supply has been put under pressure by shortages of labor, raw materials and components and the waves of Covid. All this, under the watchful eye of the Federal Reserve (FED) who let this mixture simmer for months …
The American economy is now paying the bill. “Growth will be much poorer than expected and inflation higher: the Federal Reserve will surely have to act faster than expected”, predicts Christophe Barraud, chief economist of Market Securities, elected several years in a row best forecaster for the economy American by the Bloomberg agency. At the risk of causing tremors … Review of figures that worry.
7% d’inflation
Unheard of for forty years across the Atlantic: last December, consumer prices climbed 7% over one year. An increase that is not driven only by the price of energy. Everything is increasing: gasoline has jumped by 50%, new vehicles by 12% and used vehicles by 37%, food by 6%, hotels by 25%, restaurants by 7%, etc. A phenomenon that is no longer transitory, as the FED now recognizes. The Covid may explain part of these tensions on prices, its effects are becoming lasting, and the supply difficulties do not allow supply to catch up with the demand boosted by the various stimulus plans. According to some analysts, companies would also take advantage of this situation to increase their prices disproportionately …
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Low rates have also made the real estate market soar, and prices are now above their 2008 level. Rents are also affected by this crazy surge. “They have increased by 10% on an annual basis according to the estimates of various private organizations, underlines Christophe Barraud. However, the vacancy rate continues to decrease and the supply of housing is still not increasing.” Enough to fear a continuation of this increase in 2022 …
4.7% salary increase
Wages are also surging. Over the year, they have increased by 4.7%, and even 5.8% for the less qualified. In the leisure and hotel and catering sector, the progress is dazzling: compared to 2019, remuneration has climbed by 16%! The lack of manpower explains this increase: the unemployment rate is at its lowest (3.9%), the number of job offers exceeds the number of unemployed by 3.7 million, and the Covid crisis stopped the flow of migration. “The visa deficit is estimated at around 1 million for 2022”, notes Christophe Barraud. As a result, employees have regained bargaining power that they do not hesitate to use so as not to lose purchasing power in this period of inflation.
If the employer balks, they do not hesitate to quit their job to see if the grass is greener elsewhere: last November, resignations reached 4.5 million, a record for twenty years! In some sectors, exposure to Covid provides an additional argument for obtaining better remuneration. So many factors that are not about to be erased. Salary increases which will promote the waltz of labels … “The beginning of a price-wage loop is taking shape in the United States”, notes Christophe Barraud.
$ 1.2 trillion in spending
After the more than $ 5 trillion already spent to power the machine since the start of the epidemic, which has caused US debt to jump to more than 120% of GDP, Joe’s gigantic $ 1.2 trillion infrastructure plan Biden was adopted late last year. Enough to put a little more fuel in the machine and fuel the overheating? If this plan is far from being useless given the state of the American infrastructures, “it was perhaps not the good timing given the current situation, analyzes Christophe Barraud. A policy of supply of housing would perhaps have been more appropriate, to calm the rise in rents which is fueling overheating. ” It remains to be seen whether the FED will manage to navigate skillfully between Charybdis and Scylla to calm this runaway without causing disaster …
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