Trump is likely only exacerbating the problem that got Americans to vote him into power

Consumer prices In retrospect, inflation has been raised as one of the factors that decided the US presidential election.

Rapid inflation typically hits low-income people the hardest, who spend most of their income on necessities. They include, for example, energy, food, housing and clothing.

The outgoing president Joe Biden during the term of office, prices have increased by 20 percent. When the same amount of money can buy fewer goods and services than before, purchasing power weakens and people become frustrated.

Based on research, people often interpret rapid inflation as treating unfairly: wealthy people’s wages rise more as a result of inflation.

“In their own circle of experience, people do not notice the wider effects of accelerated inflation, such as a decrease in unemployment or an increase in nominal wages,” says the professor of empirical macroeconomics at the University of Helsinki Antti Ripatti.

Many Americans blamed the Biden administration for everything getting expensive.

But to what extent was the rise in inflation due to Biden’s economic policies, and will the next president Donald Trump stepping into the same political minefield?

Biden’s the term of office began on January 20, 2021, in the midst of the coronavirus pandemic.

In the worst phase of the pandemic, household savings grew. The restrictions imposed to contain the virus reduced consumption opportunities and especially the demand for services decreased significantly. At the same time, factories, warehouses and ports were closed all over the world.

When households started using their “extra” savings, the supply could not meet the demand. Disruptions in supply started to accelerate inflation in autumn 2021.

A new inflation boost came in early 2022. Russia’s attack on Ukraine caused an energy crisis. It also affected the United States, although less so than in Europe. Because of the war, food prices also rose.

“Due to the pandemic, the workforce in the United States moved away from the badly affected service sectors. Furthermore, due to illness, the workforce moved into retirement and out of the workforce. Frequent illness reduced the labor supply,” says Ripatti.

In his opinion, the central bank’s interest rate hike was delayed because it had previously committed to an extensive securities purchase program. However, the central bank makes its decisions independently, regardless of the president’s views.

“Raising interest rates at the same time as the purchase program would have been like pressing the gas and the brake at the same time. That’s why the purchase program had to be stopped before interest rates were raised. The central bank and the economists’ union did not understand how tight the labor market was.”

As the economy began to recover from the pandemic, the tight labor market accelerated wage increases and the inflationary boost became more permanent.

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“People were given checks just when the pandemic was easing anyway.”

President Biden strongly revived the US economy. Public investments were increased, especially in construction and combating climate change.

The economy recovered quickly and unemployment was at a record low. Slowly, the economy began to overheat, as the demand for labor was greater than the supply.

Companies had to compete for employees with large wage increases, which in turn was reflected in the prices of the goods and services they sold.

The name of Biden’s investment program was the law of slowing inflation (Inflation Reduction Act), but it actually accelerated inflation. Other resuscitation measures had the same effect.

“Biden’s revival came at a difficult time. People were given checks just when the pandemic was easing anyway. In addition to this, labor force moved away from the service sectors during the pandemic, which caused a labor shortage, because they were not ready, at least initially, to return to their former jobs.”

At the beginning of 2021, citizens were given “free” money. That meant a $1,400 check for low- and middle-income earners.

“The timing of the checks failed because the economy was already recovering but the supply disruptions were still large. They contributed to the overheating of the economy and intensified the acceleration of inflation, which was also warned about in advance.”

Also the research director of the financial company Danske Bank by Heidi Schauman I think it’s pretty clear that Biden’s strong stimulus accelerated inflation somewhat.

“However, it should be taken into account that Trump also revived the economy a lot in the early stages of the pandemic. If it had been known in advance how serious the inflation problem would be, it would hardly have been revived as much. Hardly anyone knew that for sure in advance.”

According to him, the approach to inflation is also different in the United States than in Europe.

“It may be that the political effects of inflation are greater in the United States, because income inequality is greater there. It seems that inflation is almost everything in the United States, while in Europe it is one problem among others.”

Next President Donald Trump has promised significant tax cuts and heavy import tariffs, with which he aims to protect domestic production from international competition.

Economists are almost unanimous that Trump’s economic policy is apt to accelerate inflation again.

“Tax cuts, import tariffs and limiting immigration would accelerate inflation in the United States. A lot depends on their timing and what kind of inflation-reducing factors in the economy will be affected if these decisions are made”, says the economist Sanna Kurronen from the Bank of Finland.

Correction 16.11. 12:34 p.m.: Ingress falsely claimed that Joe Biden lost the US presidential election. Biden did not lose the election, because he gave up his candidacy. Kamala Harris, who replaced her, lost the election.