The United States and Europe hit record inflation levels amid the Ukraine crisis

The United States Department of Labor announced that inflation had reached a new high since 1981, rising 8.5% in the year to the end of March, as the conflict in Ukraine pushed up labor costs. energy for average households.

The latest consumer price index (CPI), which measures the prices of a basket of goods and services, comes after prices rose 7.9% in the year to February.

This means that America is experiencing the fastest rate of annual inflation in 40 years.

To put that into perspective, the price of goods and services is now rising at levels not seen in the United States since Ronald Reagan took over as President from Jimmy Carter.

Amid rising energy prices following the conflict in Ukraine; ongoing supply chain issues and growing demand are further weighing factors.

The price increases are quite significant, with the cost of rent, gas and food causing the most hardship for lower-class and poor American households who are most affected.

Motorists at the gas pump are facing soaring prices, which has been the main component of recent price increases. The gasoline index rose 18.3% in March and accounted for more than half of the monthly increase for all items.

According to the American Automobile Association (AAA), nationally, the average price of a gallon of gas is now $4.11, compared to $2.86 a year ago.

The crisis in Ukraine, which many have blamed on the US-led NATO military alliance, has driven up energy prices after Washington and its Western allies banned all Russian gas and fuel supplies. oil.

Next comes the food index, which increased by another 1% in March compared to February and by 8.8% compared to the previous 12 months.

Chicken parts rose 15.1%, citrus fruits, including lemons, limes and grapefruit, 19.5%. Prices for oranges and tangerines increased by 18.3%.

The price of rice rose a further 3.2% from February to March, while the prices of canned fruits and vegetables rose 3.8%, potatoes 3.2% and ground beef 2. .1%.

Experts say the latest figures will be a major setback for US President Joe Biden’s administration.

The Biden White House has already waned in popularity, and Democrats face a very tricky challenge trying to retain control of Congress in November’s midterm elections.

Earlier this week, the White House tried to cushion the blow by issuing a warning ahead of the March data release saying it expected a bad run of numbers.

Biden even blamed Russia’s President Vladimir Putin for America’s economic mess, saying, “I’m doing everything in my executive power to bring down Putin’s price hike.”

Last year, critics denounced Biden’s “Build Back Better” plan to fix the economy, saying he would have imposed the biggest tax hike in more than 50 years.

Some Democratic senators joined Republicans in rejecting the bill, but despite the heavy blow, the US president refuses to abandon his tax agenda.

Biden’s latest proposal to fight inflation includes the same tax hikes he proposed last year. Analysts say the plan is a pathway to higher inflation and an economic recession.

Biden says his tax increases target corporations and millionaires, but critics say they would actually hurt American workers, families and job creators during a time of economic uncertainty.

Even Senator Bernie Sanders has wondered how Biden’s plans will benefit the poor and not the millionaires.

Expert economists say the latest inflation figures are likely to bolster the Federal Reserve’s resolve to raise interest rates as it struggles to control inflation levels.

However, history shows that this does not exactly solve the problem.

With higher interest rates there is also a negative impact on the stock market. Fed rate hikes make market borrowing more expensive and the cost of doing business increases for public and private companies; which in turn leads to layoffs and higher unemployment throughout the county.

Adding to economic hardship, Americans are not even getting their tax refunds on time at a time when inflation is hurting family budgets.

Observers argue that it is important that Americans at least get their own money in time to ease their financial troubles.

The Internal Revenue Service says it is still on hold after major pandemic-related delays and does not expect to finish processing returns until the end of the year.

But can Americans afford to wait months to receive their own money from their government?

Analysts say this can be easily resolved by all federal employees returning to the office; many of whom are still working from home.

According to the Ludwig Institute for Shared Economic Prosperity, inflation-adjusted earnings for the first quarter of 2022 show American workers losing ground, forcing a higher percentage of the workforce out of employment status. paid for the month of March and to the ranks of the “functional unemployed”.

The think tank says “being forced to make decisions between food and shelter versus health care and education is not a long-term sustainable situation for a healthy society.”

Meanwhile, in Europe, prices in the eurozone rose 7.5% in March from a year earlier.

Again, it’s a push Europeans haven’t seen in four decades and far exceeds the central bank’s 2% target.

As in America, inflation is fueled by energy prices, which soared 45% last month from a year earlier.

According to the President of the European Central Bank Christine Lagarde, energy prices should remain high in the short term and then “moderate to a certain extent”.

Food prices are also rising sharply due to higher transport costs and the high price of fertilizers, of which Russia is one of the main producers.

The European Central Bank indicates that, overall, price increases are becoming more widespread.

The bank is literally stuck between a rock and a hard place. On the one hand, high inflation means it has room to withdraw stimulus. But the deteriorating outlook for economic growth means there are major risks to tightening monetary policy.

If the Central Bank raises interest rates, it could cool the economy too much when economic growth is already slowing and pointing to a recession.

It’s a similar dilemma facing the Fed in the US and similar to America, the European Central Bank says the conflict in Ukraine is “weighing heavily on business and consumer confidence”.

Trade disruptions are driving new material shortages, and soaring energy and commodity prices are holding back production, he added.

Lagarde says “while the risks from the pandemic have diminished, the war could have an even stronger effect on economic sentiment.”

Worries about the future of the economy are particularly acute in Germany, Europe’s largest economy, due to its heavy reliance on Russian energy.

At the end of last month, economic advisers to the German government said the outlook had deteriorated “sharply” because of the war, with a growing risk of recession and higher inflation rates.

Outside the eurozone, the UK is also facing similar crises, linked to higher inflation, especially oil prices.

The economic outlook is very bleak for the West, with worries about skyrocketing gas prices in the United States and Europe becoming a top concern for Americans and Europeans this year.

How to replace Russian gas? contributing to efforts to find a peaceful solution to the war in Ukraine is a good first step.

The lifting of sanctions against the main oil-producing countries comes just after.

Mary I. Bruner