Will China Save the US from Inflation Fears?
The Federal Reserve Bank of Atlanta warned last month that the US might be headed toward an inflationary episode on par with the period following World War II, when the release of pent-up demand fueled a 20% surge in prices. But China's efforts to stabilize commodity prices should help to avoid a worst-case scenario.
AMHERST – The fiscal expansion in the United States in response to the COVID-19 pandemic is like nothing seen outside of wartime. Further large-scale public spending will be needed to rebuild needed infrastructure, tackle climate change, and create jobs. But some prominent economists are warning that government spending on such an extraordinary scale could fuel accelerating price growth and cause inflation expectations to become unanchored.
For more than three decades, expectations of moderate price growth in the US and other advanced economies have been sustained – not least by China’s integration into the global economy. Might China come to the rescue as the Biden administration seeks to open the fiscal floodgates?
There are certainly reasons to be wary of price risks. At the core of Biden’s initiative are infrastructure investments, which require materials such as steel and copper. And, in 2021, commodity prices have soared, triggered by supply-side bottlenecks and the global economic recovery.