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Why is inflation happening in the US and how can it be stopped?

The United States has been experiencing a period of price increases recently, but President Biden is confident that the Build Back Better bill can address the trend.

The United States has been experiencing a period of price increases recently, but President Biden is confident that the Build Back Better bill can address the trend.
FREDERIC J. BROWNAFP

Last week President Biden reflected on a slightly underwhelming November jobs report which showed that roughly 210,000 new jobs were added. The United States’ economic recovery from the pandemic has been riddled with peaks and troughs and inflation is now causing problems for millions of households.

In October the inflation rate was the highest that it had been since the 1980s. As such we go into the holiday season, traditionally a boom period for the retail and hospitality sectors, with consumer confidence the lowest it’s been in a decade.

The Federal Reserve has insisted that the inflationary effects and price rises are “transitory” but why have they happened?

US consumers suffer as inflation rate soars

The term inflation describes a general price rise across all or most areas of consumer goods and services. Over time, the price of everything from property to your grocery shop will increase and wages and other sources of income should increase by roughly the same amounts.

However the unique circumstances of pandemic-affected United States has meant that prices have risen very abruptly, equating to a 6.8% year-on-year increase in November. There were particularly notable price increases in energy, housing, food, vehicles and recreation.

It is thought that the various forms of financial relief implemented since the pandemic began have overheated the US economy and caused the high rate of inflation. The three rounds of stimulus checks, additional unemployment benefits and expanded Child Tax Credit have meant that hundreds of billions of dollars has flowed into the markets.

“There’s a lot of uncertainty. We don’t know what happens next. The past two years have been unprecedented and painful,” said Claudia Sahm, a senior fellow at the Jain Family Institute. “We’re going to have a bumpy ride.”

White House hopes Build Back Better will address inflation

Inflation is clearly a major issue for the nation but President Biden will hope for the swift passage of the Build Back Better bill, which experts suggest could help curb the price increases. On Friday a group of 54 economists signed a letter in conjunction with advocacy group Invest in America Action, calling on Congress to pass the package.

The group includes the likes of Alan Blinder, former vice chair of the Federal Reserve’s Board of Governors, and Elgie Holstein, former White House special assistant to the National Economic Council.

They argue that the social spending initiatives would help alleviate the impact of inflation by lowering the cost of essential expenditure, such as education, child care and healthcare coverage.

In September a group of 17 Nobel laureates in economics co-signed a letter reiterating the White House’ claims that the Build Back Better bill would not exacerbate inflation, and would bring important benefits.