The largest economy in the world is going through hard times – in the United States, inflation has accelerated to a thirty-year high. Energy resources, products and services are rapidly becoming more expensive. Americans will have to come to terms with rising prices. How this will affect Russia and other countries – RIA Novosti figured out.
At maximum values
In October – 6.2 percent in annual terms. Nobody expected such a powerful surge. Prices for energy resources soared by one third at once. For food – by 5.3 percent. The consumer basket rises in price for the third month in a row. This has not happened since the presidency of Ronald Reagan in the early 1980s. Unsurprisingly, the market reacted immediately with a drop. The S&P 500 index sank 0.82 percent, the industrial Dow Jones – 0.66, the NASDAQ Composite – 1.66.
All these are the consequences of the coronavirus crisis and the fight against it, analysts explain. To overcome the recession, the financial authorities turned on the printing press. The Federal Reserve has flooded the economy with $ 120 billion a month. At the same time, the base interest rate remains low – close to zero.
Problems with logistics are also affecting. Disruptions in the supply of products and components continue to this day. This is superimposed on production cuts due to lockdowns. As a result, there are not enough goods. The energy crisis adds fuel to the fire. More expensive fuel increases production costs and, accordingly, prices. Anomalous drought also made its contribution; the year turned out to be a poor harvest. I had to rewrite the price list for the products.
And so all over the world. In Germany, inflation peaked since the 1970s crisis. In China in October – one and a half percent, a record for the last 13 months.
“In China, the situation is somewhat different. Here, manufacturing inflation is higher than in the United States: about 15 percent against eight. However, thanks to administrative regulation, it has not yet spilled into the domestic market and consumer prices have not increased. In other words, the Chinese authorities ordered enterprises to take these costs on themselves. reducing its own margin, “explains Anton Bykov, senior analyst at Esperio.
Nevertheless, the Chinese real estate sector is shaking, the economy is slowing down. It remains to be wondered where the limit beyond which it is impossible to contain the inflationary wave is. Once this happens, consumption in the country will plummet. The People’s Bank of China will have to raise the rate, which will provoke a cyclical crisis, the source said.
All the will of the Fed
“Inflation is hitting the pockets of Americans, and my top priority is to reverse this trend,” said United St-ates President Joseph Biden in a written statement. Most of all, the energy resources are becoming more expensive. “I have instructed the National Economic Council to take action to bring these prices down,” Biden said.
The Federal Reserve earlier announced a gradual cut in monetary stimulus starting in November – by $ 15 billion a month. This can limit inflation. “After the publication of macroeconomic data, the Fed has no choice but to quickly close the liquidity tap. Therefore, at the next meeting on December 15, we should expect a more significant curtailment of the bond purchase program for $ 25-35 billion,” notes Anton Bykov. But the base rate is still at the level of 0-0.25 percent per annum. The Fed decided that it would be more expedient to maintain this range until the labor market reaches its maximum employment. Altho-ugh the sharp rise in prices, perhaps, will force them to hurry up with the increase.
The Fed’s actions affect the behavior of investors, who usually leave developing countries if there are signs of deterioration in the long-term prospects of the global capital market and the economy. Shares, currencies, including the Russian ruble, risk being under pressure.
“The Fed, of course, will take the path of increasing rates. Moreover, before the designated dates – already in the middle of next year or earlier. Depending on inflation. This threatens a large-scale correction of stock markets and weakening of developing countries’ currencies,” warns Fyodor Sidorov, a private investor. founder of the School of Practical Investing.
However, Russia, unlike other countries, has a minimum external debt of $ 489.2 billion, or 17.8 percent of GDP. In the same America – 28 trillion, or 108 percent of GDP. In addition, our Central Bank is building up its gold and foreign exchange reserves: as of November 1, there are $ 624 billion. This protects against tightening of the Fed’s monetary policy.
Two in one: inflation and stagnation
And yet, inflation in the United States and China will inevitably spill over to emerging markets – due to rising prices for imports. In Russia on November 1 – 8.14 percent in annual terms for the first time since 2016. This is twice the target of the Central Bank. And the problem is not only in the growth of consumer prices, analysts say. “Due to the rise in prices for raw materials and materials, and a decrease in the purchasing power of the population, production becomes unprofitable. Many enterprises are closing or reducing output,” says Mark Goikhman, chief economist at the information and analytical center TeleTrade. Thus, one can face both high inflation and stagnation of the economy. This combination is called stagflation. It is dangerous because it limits the effectiveness of anti-crisis measures. Usually, when GDP falls, central banks soften policy, stimulate investment and consumer demand with available money. At the same time, a slight increase in inflation is acceptable and even useful. This is usually temporary, and the situation stabilizes when the volume of goods increases.
Then the regulators curtail soft policies and reduce the money supply. The economy is returning to normal. That is, moderate inflation and economic growth complement each other. But now prices are out of control. In addition, GDP growth is slowing down. Things can get better when the global economy returns to the old regime. But no one will name the dates, even very approximate ones.