Inflation Fears Rise. Why the Biden Stimulus will help the Economy?

 

 

Prices of steel are on the rise while supply chains are experiencing shortages. There is a post COVID supply-demand crunch. Consume prices have risen 4.2 % in April compared to a year ago.

Personal income decreased $3.21 trillion (13.1 percent) in April according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $3.22 trillion (14.6 percent) and personal consumption expenditures (PCE) increased $80.3 billion (0.5 percent).

Real DPI decreased 15.1 percent in April and Real PCE decreased 0.1 percent; goods decreased 1.3 percent, and services increased 0.6 percent . The PCE price index increased 0.6 percent. Excluding food and energy, the PCE price index increased 0.7 percent

The decrease in personal income in April primarily reflected a decrease in government social benefits .Within government social benefits, “other” social benefits decreased as economic impact payments made to individuals from the American Rescue Plan Act of 2021 continued, but at a lower level than in March. Unemployment insurance also decreased, led by decreases in payments from the Pandemic Unemployment Compensation program.

The $80.3 billion increase in current dollar PCE in April reflected an increase of $112.6 billion in spending for services that was partly offset by a $32.3 billion decrease in spending for goods. Within services, the largest contributors to the increase were spending for recreation services and for food services and accommodations. Within goods, a decrease in nondurable goods was partly offset by an increase in durable goods. Within nondurable goods, the decrease was widespread and led by food and beverages. Within durable goods, the increase was accounted for by an increase in motor vehicles and parts.

Used car prices are up. The Fed says rates will not be raised until more people get back to work. With workers also demanding higher wages, businesses must raise their prices to meet these demands.

After the budget is delivered there will be a lot of activity in Congress as it begins voting on the 12 annual spending bills that are required to keep the government open after October 1, which is when the new fiscal year will begin. None of these bills have received bipartisan support, as yet.

The government plans to release the green book. It will detail all the spending, proposals and other related matters. However, it could create more conflict between the Democrats and Republicans. This was not released when Trump was the president.

Although President Biden has always looked for bipartisan support, the Democrats could use the budget reconciliation process to pass the budget. The 2022 midterms are drawing close, and the Democrats are looking to keep their lead and the Republicans are looking to get back control of Congress. Bipartisanship to pass the budget is a lofty goal. Whether it will be reachable after the hundreds of pages of the budget proposal will be unveiled by President Joe Biden, on Friday, remains to be seen.

 


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