With more jobs than workers, the US does not curb inflation and is at risk of recession – News

In the United States, there are more job openings than people looking for work. Full employment has exacerbated inflation in the country, which is up 7.1% in the first quarter of 2022 compared to the same period in 2021, according to data released by the Department of Commerce. The rise in interest rates to curb the skyrocketing prices it also reached historic levels in the annual comparison (5.2%), which contributed to increase the fear of recession in the American economy.

Full employment worsened the post-pandemic price acceleration by opening room for wage negotiation, which further increases consumption, in a scenario with supply problems. The production chain is still recovering from the disruptions caused by Covid-19, while suffering from new problems generated by the war between Russia and Ukraine.

According to Reach Capital’s partner and chief economist, Igor Barenboim, the country is experiencing a price and wage spiral. “The United States has two job openings for every person looking for a job. So wages increase, today they are growing by about 6%. If the salary increases, the cost of production increases and is passed on to the consumer, causing prices to rise,” he explains.

With the salary negotiation above inflation, people earn more, consumption grows and also puts pressure on prices. According to Mackenzie professor and chief economist at G11 Finance, Hugo Garbe, “when there is full employment, without production to keep up with this demand, there are also characteristics of inflation, even more so at a time when supplies in the world still did not return to normal, which causes an increase in costs”.

Even with accelerated consumption and most people employed, the GDP (Gross Domestic Product) of the country shrank 1.6% in the first quarter, according to an estimate by the US Department of Commerce, released this Wednesday (29). The data has been revised downwards for the third time.

With the retraction of 1.6% in the quarter, the country’s GDP is already officially in recession. This was practically inevitable. When you have the combination of full employment and high liquidity, generated by aid during the pandemic in the international market, it is difficult not to have inflation. Full employment hinders inflation, because you have a lot of people employed and consuming. The recession comes from the increase in interest rates to control inflation, which seeks to curb consumption. Americans are not used to paying interest and they reduce purchases”, explains Garbe.

Causes of inflation

Garbe also points out that full employment, despite putting pressure on prices, “is not the root cause of inflation, but contributes to an increase of 5% to 10% in the index”. “There was excess liquidity during the pandemic, when the Biden administration injected around $1 trillion in aid. This money, essentially, was not received by the humblest people and was used to buy superfluous items. There was printing of paper money and there was no production. So you have an avalanche of demand with a smaller supply,” she says.

High interest rates took a long time to arrive

According to Igor Barenboim, the American Central Bank’s expectation was that inflation would subside without the need for interest rate increases, which did not happen. “The bet was that people would stop consuming goods and supply would return to normal, but many people continued to consume. Then there was the war, and that pressured prices more permanently. The Fed (Federal Reserve) arrived We have a very large supply shock that has secondary effects. There is no point in trying to lower, for example, fuel with interest, the ideal is to ensure that fuel does not affect other prices in the economy, wages, services ”, he explains.

The country’s interest rate reached 1.75%, after a 0.75 percentage point increase, the biggest increase since 1994. The Fed raised interest rates in April to 0.5%, the first increase since 2018. The Bank Central American announced that the cycle of increases should continue, the next increase should be 0.5 or 0.75 percentage point.

“The Fed took a long time to raise interest rates, it didn’t believe much in the inflationary process. Now, not only is inflation coming hard, but there is a fear of american recession. This inflationary process is blamed on the Fed, which did not raise interest rates at the ideal time. The United States is known as a major consumer country. The rise in interest rates helps to slow down inflation and control consumption, because the purchase of goods becomes more expensive. From the moment you are going to finance a property, a vehicle, for example, everything becomes more expensive in the end”, analyzes Garbe.

*Intern at R7under the supervision of Ana Vinhas

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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