US-China dispute: Who is causing the inflationary pressures?

By Costas Raptis

In an interview with CBS’s Face the Nation, US Treasury Secretary Janet Glenn attributed the inflationary pressures that have already begun to upset American households to the imbalances created by the pandemic, with a sharp drop in demand for services and simultaneous increase in demand for goods. As she said, the end of the pandemic, which she identified for the second half of 2022, is expected to bring a rebalancing of prices.

He also referred to other interesting elements, such as the tightness of the labor market, where the reduction of unemployment goes hand in hand with a significant reduction in labor force participation. The new jobs that are being created are being filled with difficulty in some sectors, as America experiences an unprecedented wave of resignations. Glenn wanted to interpret this fact optimistically, as a sign of competitive labor offers, but did not shy away from noting that the fear of a pandemic has removed many workers from positions that require physical presence (to the point that she suggests that a relaxation of immigration policy), while the participation rate of women in the labor force is now disproportionately low for a developed country, due to deficiencies in the childcare network.

In each case, they have seized it, despite obstacles we can scarcely imagine. ” ), with the crisis of the real estate company Evergrande and the emerging tendency of the authorities to let the overly leveraged companies be liquidated.

But it is up to the Chinese side to reverse the allegations, arguing that the US is the main exporter of inflationary pressures around the world, mainly due to more than a decade of lax monetary policy.

According to an analysis by the Global Times, the Chinese Consumer Price Index rose 1.5% year-on-year in October, an acceleration from 0.7% in September, but In the US, the Consumer Price Index rose 6.2% year-on-year in October, while structural inflation (excluding food and energy prices) stood at 4.6%. these two numbers are the highest since 1990.

The spread of inflationary pressures is already evident in the eurozone, where last month it was 4.1%, the highest in at least a decade.

According to the Global Times, the rise in inflation in China is due to rising commodity prices. (The Producer Price Index jumped 13.5% year-on-year in October, setting a 26-year high). In addition, the Chinese authorities tried to offset this trend with corporate tax breaks. The source of international inflationary pressures must therefore be sought elsewhere.

According to Chinese analysts, the “source of evil” lies in the different choices of the central banks – US and Chinese, and they argue that there are no easy solutions to the US inflation problem because the usual option in such cases, ie raising interest rates would destabilize financial markets, with Wall Street first.