Over the nearly four decades I have been visiting the US, I used to be struck by the ability of this largest economy to ensure price stability. On my recent visit after a gap of four years I find the country struggling to cope with raging inflation.
For several years inflation in the US used to be less than 1 per cent. The prices of most products and services were stable. The improvements in technology and distribution and, more importantly, volume production, contributed to this stability.
Today I find this enviable record gone for a toss. The Consumer Price Index for select items of mass consumption over 12 months ended June was at 9.1 per cent the highest in four decades. For several years in the 1980s and 1990s I noticed the price of petrol a little over a dollar per gallon (3.8 litres). Today I find this over $5.
PETROL IS COSTLIER IN THE US THAN IN INDIA – FOR THE FIRST TIME IN YEARS
In the past the price of petrol in the US used to be less than half that of India’s. Due to the market related pricing mechanism and the steep depreciation in the value of the rupee, today petrol is costlier in the US than in India. For families spending a lot of time in cars, this indeed is a severe blow. There are fears of these developments impacting the prospects of President Biden’s Democratic Party’s elections to the Senate and Congress in November.
After two years of the Covid havoc the whole nation seems to be out travelling. Airfares, household energy, groceries, new and old vehicles and other items of mass consumption have reached levels not seen earlier. In large volume stores like Costco, I notice an increase in the prices, even for volume purchases, shooting up to 45-50 per cent. One also witnesses the curious spectacle of low unemployment, but lower profits causing concern over recession.
RISE IN INTEREST RATE
The Federal Reserve, entrusted with the task of tackling inflation, has been increasing the interest rates. Against the past practice of a very modest increase of 0.25 per cent at a time, it is now taking place more frequently. There was a plan to increase by 0.75 per cent during the next phase. This will have implications on investments and hence on economic growth.
In comparison, India seems to be managing its economy much better. India is estimated to record the highest rate of growth estimated at over 7 per cent this year. More important, is the success of India in taking care of the poorer sections of the population. The huge food stocks have been effectively utilised to reach the poorer sections during the last two years and more. Sizeable sections of the population are provided food free. This is a good help to the poorer sections and also help contain inflation. In contrast, the raging inflation is impacting severely the poorer sections in the US.
