Inflation Eases: Politicians Blame The Central Bank

inflation eases

Recently there was seemingly good news from the inflation front, which has been very tense for many months. Namely, the U.S. inflation rate fell slightly from 8.5 percent in March to 8.3 percent in April, as reported by the U.S. Bureau of Labor Statistics (BLS) on Wednesday. One could take this small drop as the first sign that the tightening of U.S. monetary policy is having some effect.

U.S. Inflation Eases, Stock Markets Nevertheless Continue To Fall

But the stock markets, of course, had something to complain about again. The decline in the inflation rate was somewhat weaker than expected (on average, bank economists had expected an inflation rate of 8.1 percent for April). As recently as March, the inflation rate had reached its highest level since 1981. We are not that far away from that.

It is true that the stock markets initially rose sharply shortly after the data were published (inflation eases). However, by the close of trading they had fallen very sharply into negative territory and closed at an intraday low.

The leading index S&P 500 suffered a daily loss of -1.65%. In addition to the approximately -16.5% since the beginning of the year.

Blaming The Central Bank

Meanwhile, politicians are gradually discovering the issue of inflation for themselves. The same politics that triggered the shortages and demonetization with their useless lockdowns and economic hindrances, along with rampant bailouts of large corporations “on credit”, which is the main cause of the current extreme inflation. These people are now passing the buck to the Federal Reserve for inflation.

Thus, U.S. President Joe Biden has called on the Fed to fight decisively against high inflation. In an official statement, Biden wrote: “While I will never interfere with the Fed’s independence, I believe we have built a strong economy and a strong labor market, and I agree with what Fed Chairman Powell said last week that the greatest threat to that strength is inflation. I’m confident the Fed will do its job with that in mind.”

Failed Policy Is The Real Cause Of Inflation

On its own, monetary tightening is already too late. Policymakers should have made such demands a year ago at the latest. Instead, however, these people preferred to get high on cheap money in order to be able to incur new debts on a grand scale, so that they could look like noble saviors afterwards. For a problem (de facto prohibition of economic activity in many areas) that they had created themselves.

We are also now seeing more than before, the inflation populists demand the usual: the government may relieve the citizens with printed money. But this does not solve the scarcity and thus the root of the inflation problem.

And with more and more debt, the problem will get even bigger. An exploding money supply (as we are currently seeing) is like pouring gasoline on the inflation fire.

Policymakers Can Solve The Inflation Problem

We need an economy that can develop more freely. Less bureaucracy and taxes. Free access to all markets. However, politics is doing the exact opposite of this.

The planned EU boycott of Russian oil, gasoline and diesel until the end of the year without the possibility of getting affordable replacements is only part of this problem.  At least there are some small rays of hope.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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