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Haunting the recovery

May 13, 2021

Another challenge looms over the world's most advanced economies as they turn the tide against Covid-19: the potential threat of inflation.

Shoppers surging to stores and diners trickling back to eateries in the U.S., the U.K. and parts of Europe are unleashing pent-up demand for goods and services.

That's combining with the pandemic hangover of supply-chain disruptions, spiking commodity prices and rising wages to potentially reawaken the economic bugbear that's feared at least as much as recession by policy makers.

Consumer prices in the U.S. jumped the most in more than a decade in April. While officials at the Federal Reserve described the rise in prices as "transitory," investors responded by driving stock prices lower.

For everyone else, inflation will be felt both at the cash register and in its influence on government spending decisions.

It's fanning anxiety over President Joe Biden's $4 trillion plan to remake the U.S. economy. He argues more spending on families and infrastructure is crucial after decades of rising inequality and decay.

Biden's allies say the plan won't fuel inflation because it's spread over years and will be offset by tax hikes. His Republican opponents are already making comparisons with the 1970s "stagflation" era of former President Jimmy Carter.

Fiscal restraint also carries risks. In Colombia, deadly street protests forced President Ivan Duque to scrap a plan to trim the budget deficit by increasing the tax burden on the rich and the middle class.

Many governments will have to tread carefully between alleviating poverty caused by the pandemic and fine tuning public spending in the face of inflation risks. The wrong economic call could spell political disaster with voters long exhausted by the health crisis. — Michael Winfrey

Shoppers at a mall in Glendale, California on May 6.

Photographer: Bing Guan/Bloomberg

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Global Headlines

Cheney's martyrdom | U.S. Republican lawmakers ousted Liz Cheney from her House leadership position for denying ex-President Donald Trump's phony claim that the 2020 election was stolen. Yet, as Joshua Green writes, the Wyoming congresswoman's defiance has set her up as the new anti-Trump leader in a bitterly divided party.

  • Trump's kingmaking plan could hurt Republicans' chances of regaining control of Congress in the 2022 midterms.

Partnerships tested | Israel's eight-month-old accord aimed at normalizing relations with the Arab world is proving difficult to navigate as violence with Palestinians flares from Jerusalem to Gaza. Lin Noueihed reports that, with the clashes escalating, Arab governments are facing increasing pressure to take a stand.

Of the 100 cities most vulnerable to environmental issues including air pollution and natural disasters, 99 are in Asia, research firm Verisk Maplecroft said today in a report. Of those, 37 are in China and 43 in India.

Multiple failures | The World Health Organization should be revamped and given more authority to investigate global disease threats, according to a review of the international Covid-19 response that found a series of problems allowed the virus to become a pandemic. The report linked the severity of the outbreak to deficiencies across governments, the WHO and regulations that guide official actions.

  • Read how the success dealing with the coronavirus in a few wealthy nations risks obscuring ongoing worldwide suffering from the pandemic.

Back in business | The U.S.'s largest gasoline pipeline resumed operations after the cyberattack that sent pump prices surging and triggered shortages across the east. Even though the Biden administration temporarily waived century-old shipping restrictions to allow foreign tankers to transport fuel to areas with scant supplies, it's unclear how long it'll take to get back to normal.

Shortage fears | As Covid-19 spikes in India, so has the need for oxygen concentrators to separate the gas from air and assist patients with low blood-oxygen levels, a portable line of defense for those recuperating at home. But Abhinav Mathur, founder of the Million Sparks Foundation, warns India needs as many as 200,000 of the devices to meet demand, and stocks are critically low.

What to Watch

  • A group of medical experts said the Pfizer-BioNTech vaccine is safe for children from 12 to 15 years old, opening a new phase of the U.S. immunization effort.
  • The European Union says Russia is trying to gradually absorb parts of eastern Ukraine, according to a document the bloc shared this week with member states.
  • Slovakia is set to become the second EU member to use the Russian Sputnik V coronavirus vaccine after resolving a disagreement over negative reports by its drug regulator.
  • Ivory Coast Prime Minister Patrick Achi was evacuated to France for medical tests after suffering fatigue, sources say.

And finally ... Bitcoin devotees got a rude awakening after Elon Musk said his Tesla electric-vehicle manufacturer is suspending purchases using the digital currency out of environmental concerns. Tesla's addition of Bitcoin to its balance sheet was the most visible catalyst during this year's rally. The largest cryptocurrency dropped as much as 15% before paring some of the retreat.

 A Bitcoin farm in Nadvoitsy, Russia on March 18.

Photographer: Andrey Rudakov/Bloomberg

 
 

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