Inflation in the US 7% - a record of 40 years

What caused the development that surprised the Biden administration?

According to estimates - printing money to help businesses in parallel with the shortage of raw materials, has maintained high demand that will fuel inflation.

What will they do in the US - and should a similar fate be feared in Israel as well?

Sonia Gorodisky

12/12/2021

Sunday, 12 December 2021, 11:25 Updated: 11:43

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Disruptions in supply chains, rising energy and raw material prices and rising demand led to a dramatic rise in US prices, and inflation in the world's largest economy peaked at almost 40 years. , This is the fastest annual rate since 1982, when Ronald Reagan was president of the United States.

The recovery from Corona, which brought with it a rise in demand, caused prices to rise around the world, but no one in the US administration expected inflation to reach those levels, which added to a headache for Biden. According to the Bloomberg website, "High prices have helped U.S. businesses, which have recorded the highest profit margins since the 1950s thanks to high inflation. "For Joe Biden's administration and Federal Reserve Chairman Jerome Powell - who did not see it coming - the sudden return of inflation, which was dormant for decades before 2021, is increasingly traumatic."

The US website explains that the epidemic made it difficult to produce and transport goods and raw materials, while government governments continued to inject unprecedented aid funds to households, so demand remained high despite the crisis.

The rise in prices in the United States is horizontal and affects all areas of the American economy - for example, energy prices have jumped by a third in the past year, food prices more than 6%, and rents have risen more than 3%.

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Printing dollars for business assistance purposes, along with a shortage of raw materials, will fuel demand and lead to inflationary inflation (Photo: Giphy)

What is the Fed expected to do?

It is estimated that inflationary pressures may cause the Fed to raise interest rates on the dollar earlier than expected - by the middle of next year and reduce the bond purchase plan the economy liquidity suddenly taken in March.

"As Powell said in his testimony to Congress, it is time to retire the word" Transitory "from inflation and rightly so. The November index strengthens the estimates that on Wednesday the Fed will announce an acceleration and even a doubling of the rate of reduction in the quantitative easing that is likely to end in March, "explains

.

In addition, Beit-Or notes that Due to inflationary pressures, the American economy suffers from problems in the labor market - like Israel, America also has difficulty recruiting workers and the number of job vacancies is skyrocketing.

"Beyond high inflation, recent labor market data suggest it is very tight when, following the employment report, last week we were informed that U.S. job vacancies have skyrocketed - so the gap between the number of unemployed and job vacancies continues to skyrocket, signaling only half wages Will go and intensify.

"In our estimation, cyclical inflationary pressures are expected to continue to intensify in a way that will force the Fed to start raising interest rates as early as the first half of 2022."

Guy Beit Or, Psagot's chief economist.

"On the inflation front, Israel was a much more 'boring' place during the crisis" (Photo: Yachz)

What will be the impact on Israel?

When it comes to inflation, Israel seems to be an island of stability compared to the United States. This is despite the fact that we also saw an increase in the consumer price index that made headlines.

"On the inflation front, Israel was a much more 'boring' place during the crisis. The bottom line is today Israel is inflation at 2.3% and indeed more likely to accelerate, but it is estimated that culminate 2.6% -2.8%, still within the price stability target, "explains a light.

Estimation peaks, November CPI is expected to reach 0.1 When we look at the global inflation environment and the ongoing problems in the supply chains, we continue to assess that the risks to inflation forecasts in Israel continue to be upward. In addition, keep in mind that in a state of weakness in global markets, the shekel will depreciate, which of course will contribute to the inflation environment. Therefore, an increase in interest rates in Israel during 2022 is a very reasonable scenario, "Beit-Or estimates.

Inflation in Israel is likely to remain low relative to the United States for two main reasons: the strengthening of the shekel is a moderating factor in the rise in prices, and reduces the prices of imported products in shekel terms.

At the same time, electricity prices in Israel are not directly affected Input prices, therefore, although the shock waves of global inflation are also reaching Israel, they are coming at a lower intensity.

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• inflation

• U.S

• Joe Biden

• Ronald Reagan

• Peaks