In the meat department of the Keyfood supermarket, on Brooklyn’s Myrtle Avenue, the Rib Eye Steak is now sold at $ 21.99 per 500 grams. Almost 20% more than a few months ago. “I did not already eat a lot of meat, but here, with three children to feed, the beef will disappear from our meals!” Exasperated Hazel, a resident of the neighborhood.
Soaring prices, shortage of food, running out of food stamps: millions of Americans are suffering directly from soaring inflation. A scourge which, combined with the covid which has already accentuated social inequalities, particularly affects low wages and retirees. Food banks, supposed to ensure the free distribution of food to the poorest, are also hit hard and forced to withdraw the most expensive products from their offer. And for large families, the idea that schools could close again because of the pandemic is giddy: for many children, school is the guarantee of being able to benefit from free full meals.
New increase in December
In the United States, the consumer price index, published on Wednesday, jumped 7% in December over one year, after an increase of 6.8% in November, the largest increase since 1982. On the food plan, the rise in meat prices is the most visible. But other basic products, such as dairy products, fruits or cereals, are also experiencing significant growth. Another development that particularly weighs on budgets, that of gasoline. Its price has climbed by nearly 50% over one year, according to data compiled by the Bureau of Labor Statistics. During the same period, the price of cars also took the elevator: + 37.3% on the second-hand market and + 11.8% for those leaving the factory. But not the wages.
On Tuesday, the President of the US Federal Reserve (Fed), Jerome Powell, assured the Senate supposed to validate his appointment for a second term to want to do everything to “prevent inflation from taking root”, and relieve the most households. modest. The rapid recovery of the economy after months of the pandemic has “resulted in persistent imbalances and bottlenecks between supply and demand, and therefore high inflation,” he explained. According to a University of Michigan survey released in December, “one in four American households specifically cited the negative impact of inflation on their standard of living.”
Mission de la Fed
Reversing the trend is the tricky task that awaits the Fed. For months, she brushed aside concerns about the surge in inflation that she deemed simply “transitory.” Like most central banks around the world, she considered that once the bottlenecks were resolved, the situation would return to order, especially since oil prices would also come down.
Problem: The supply chain has not regained its fluidity as quickly as expected. The emergence of Omicron has even reinforced the difficulties with companies and sectors partially crippled by quarantines of a growing number of employees. At the end of November, Jerome Powell thus admitted that the qualifier “temporary” was “probably no longer” suitable for soaring US inflation.
In the meantime, it has even become the heart of the matter: “Like the minutes [procès verbal] of the last Fed meeting showed it, inflation has become its main concern ”, estimates Raphael Olszyna-Marzys, economist at the bank J. Safra Sarasin, who sees a certain impatience on the part of the big cashiers to get out of politics support for the economy. In these minutes, published a week ago, it is very clear that it is preparing to tighten the screws, but also to reduce the size of its balance sheet, which swelled to support the economy after the financial crisis of 2008, then when the pandemic erupted.
Rebound in growth
In fact, the US economy no longer needs so much support: real growth was 2.1% in the third quarter on an annualized basis. According to the research center of Conference Board, it should reach 6.5% for the whole of 2021, then 3.5% this year. Even though employment figures weren’t as good as expected last Friday, the labor market has largely recovered from the worst of the pandemic.
Even though the Fed takes the issue of inflation seriously, the problem is far from resolved, warns Christopher Dembik, head of macroeconomic research at Saxo Bank. We can expect persistently higher inflation than in recent years. “The price increases will be accompanied by wage demands. In the United States, for example, the fear of the pandemic as well as the vaccination obligation have kept many Americans away from the job market. In addition, according to a study by the Fed in Saint Louis, nearly 3 million Americans have gone on early retirement following the sharp increase in their pension funds with the rise of Wall Street, ”he underlines.
Enough to cause a lasting imbalance in the labor market which will itself cause what economists call a price-wage loop, when the rise in prices leads to a rise in salary. The latter will in any case be necessary to preserve purchasing power, continues Christopher Dembik: “The balance of power has therefore changed between companies and employees. They should have more latitude to try to demand higher wages ”. Especially since “the Biden administration recently underlined the importance of an increase in wages in order to keep a balance in the labor market”, recalls the expert.
Politically, President Joe Biden is in dire straits. On the decline in popularity polls, he is struggling to get Congress through his titanic social and environmental reforms – around 2,000 billion in investments over ten years – precisely because Democratic Senator Joe Manchin and the Republican camp are accusing him of ‘fueling inflation by being too expensive. The debate rages on as the November midterm elections, where Republicans hope to win back a majority in Congress, loom.
Meanwhile, in New York City, some merchants in particular are being forced to rethink their business model that became popular in the wake of the 2008 recession: those in the iconic dollar (or 99-cent) pizza slice market. Bosses are now trying to sell them for $ 1.25 or even $ 1.50 and have to change their storefronts accordingly. Or, worse, close up shop.