With inflation running amok at 7%, US has no easy way out

Throughout 2021, US President Joe Biden and Federal Reserve chair Jerome Powell insisted that consumer price rises were only "transitory", and inflation would fade away in the face of more federal spending, key of which was Biden's slated $1.8 trillion 'Build Back Better' initiative. It turned out they were very wrong. Now, the vast American middle class and working poor are paying dearly for persistently uncontrolled price rises. 

On Wednesday, the US Labor Department reported that inflation finished 2021 at its highest level since 1982 with the consumer price index up 7 percent in December versus a year ago, which rose from 6.8 percent in November. Yes, the world's largest economy now faces an inflation crisis that the country hasn't seen in the past 40 years. If the Federal Reserve doesn't move immediately to tighten policy, the CPI is likely to elevate to 9-10 percent by the summer of 2022. 

Many ordinary Americans are annoyed and angry, claiming the Biden administration has "re-engineered incompetency by re-igniting inflation". Why people are so sensitive to price rises? Inflation is a regressive tax which disproportionately harms low income groups and the retirees. A deposit of $10,000 last year is now worth about $9,300, and next year it could be worth less than $9,000, a vivid example of the erosive effect of inflation. 

Undoubtedly, inflation has become a political liability for Biden and his fellow Democrats, who face the crucial mid-term election later this year. Recent poll numbers reveal Biden's job approval has plunged to 34 percent, even lower than his predecessor Donald Trump at their second-year mark in the White House.