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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Inflation concerns in the United States

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The long-awaited stimulus cheque that citizens in the USA received as part of the Covid recovery bill, might have caused some unintended consequences.


But first, a curious fact that I would like to share, is that 1 in 10 Americans who pocketed the $1,400 cheque, decided to use it to purchase cryptocurrencies such as Bitcoin. Debatable topic that might need another column to dissect. The main point that I would cover instead is the issue around inflation in the United States, that is mounting up after the latest report from the US Labour Department. According to the figures published in early May, consumer prices jumped to a whooping 4,2 per cent in 12 months, with the highest month-on-month spike in more than a decade. In April,


prices grew by 0.8 per cent, a number matched only in 2009 in the midst of the Great Financial Crisis.


Among the products surveyed, prices grew for anything related to automotive, including the price of new and used cars and commercial vehicles, as well as tires. Part of this price variation could be due to the fact that with ready cash to spend, some consumer went straight to the market and bought.


So if a family was holding back from changing tires (because their cash flow was impacted by Covid-19 economic


consequences) having gone through the winter with a set of old tires, could have immediately found a use for the $1,400 cheque. Prices are determined by supply and demand, we know, so with more demand for tires, price would naturally increase.


But on the other hand, the inflated price of new vehicles could also be due to the global shortage of computer


microchips. This is a more rooted problem, mostly due to the backlog in production due to the lock-down in 2020.


Manufacturers are working hard to address the demand, but being able to satisfy it at full capacity means that any


interruption would create a future delay that could only be bridge at slow pace.


IBM’s President Jim Withehurst estimated that two years might be needed so that supply can catch up with demand.


Thus the price for items that operate with microchips has also been affected by the inflation. Products such as computers, television sets, toys and games have recorded higher price in April compared to March.


Another affected category is the air travel. Most airlines have recorded a higher ticket price. This could be due to the


fact that prices were artificially “grounded” in 2020 and now, as the US is going back to full capacity air travel, prices are readjusting to pre-Covid levels.


The “core price index”, which does not include the more volatile prices of food and energy, increased by 3 per cent in April from the year before. Inflation has signalled fear to Wall Street where all indexes fell: the Dow by 2 per cent,


S&P by 2.14 per cent and the tech-focused Nasdaq by 2.7 per cent. The Federal Reserve is considering to increase interest rates in order to cool down the inflation.


Investors also feared that theFed might tighten monetary policies. Such concern was reflected by the share price fall


for tech giants such as Microsoft and Apple, while gold price grew significantly during the same week.


[The columnist is a member of the International Press Association]


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