U.S. should lift people’s living standards, not inflation
The United States has tasted the bitter fruit of hyperinflation, which has stayed above 6 percent since the beginning of this year.
While attributable to the sharp rise in global energy, food and commodity prices caused by the Ukraine crisis, the hyperinflation is essentially a result of the unreasonable and irresponsible policies of the United States itself, such as massive bouts of quantitative easing, trade war against China, global supply chain disruptions, as well as escalating the Ukraine crisis and providing huge fiscal subsidies for the pandemic response at home.
When inflation became too high to bear, the United States chose not to address its root cause, but to switch to aggressive quantitative tightening. The Federal Reserve has raised interest rates twice this year, including a record hike of half a percentage point, the first of that size since 2000. The Federal Reserve also announced that it would start to unwind the balance sheet in June. All these measures have failed to curb inflation significantly, and the U.S. price surge remains in a historically high range.
Inflation does not stop at the water’s edge. As indicated by recent statistics, hyperinflation in the United States is spilling over fast, and Southeast Asia has taken the brunt, where inflation rates of many countries have climbed to new highs.
The rate in Laos reached 9.9 percent in April, when Indonesia witnessed a five-year high. Singapore saw its inflation at a 10-year high of 5.4 percent in March, coinciding with a 14-year CPI record, a roughly 5.7-percent rise from the previous year, in Thailand.
After a 4.9-percent year-on-year CPI hike in April, the Philippines suffered the worst inflation since December 2018. Judging by the current numbers, the situation in other Southeast Asian countries may seem relatively better. But experts have warned that Malaysia, Cambodia and Vietnam will see inflation hit new records in the near future. The big family of Southeast Asia is sharing the woes. According to FocusEconomics, an information service company, the regional inflation rate rose from 3 percent in February to 3.5 percent in March.
Southeast Asian countries are mostly developing countries where food consumption accounts for a relatively large portion of overall national expenditure. Therefore, in addition to increasing people’s living costs, high inflation may also lead to a higher risk of social unrest, as pointed out by Mohamed Faiz Nagutha, an ASEAN economist at Bank of America Securities.
The high inflation rates in Southeast Asian countries have naturally evoked unpleasant memories.
The Asian financial crisis in 1997 following the interest rate upsurge and dollar appreciation in the United States took its toll on the economic growth of Southeast Asian countries. Foreign exchange and stock markets plummeted like dominoes. Indonesia and Thailand suffered the most severe losses, with their GDP shrinking by 83.4 percent and 40 percent respectively within two years.
In the 2008 global financial crisis ignited by the U.S. subprime mortgage crisis, the financial systems of Southeast Asian countries were hit hard again. The Singapore Strait index fell by more than 45 percent. The Indonesian stock market had to be frozen indefinitely after a continuous sharp decline. More than 8 million overseas workers from the Philippines faced the threat of job loss and income reduction. And about 1 million workers in Thailand lived on the edge of unemployment.
Now the Federal Reserve’s aggressive interest rate hikes will again exert pressure on developing economies in multiple aspects. First of all, the rate hikes will further raise financing costs and trigger capital flight, both impacting the economic fundamentals of developing countries and complicating their post-COVID economic recovery. Secondly, the higher cost of the U.S. dollar may add a greater burden to debt-ridden countries, as underdeveloped nations tend to have a higher foreign debt ratio. Thirdly, in the foreign exchange market, the rising dollar index may create depreciation pressure on other currencies, thus triggering further inflation in other countries.
U.S. hyperinflation is seriously affecting the faltering world economy. Developing countries need to brace themselves for its long-term impact. Many of them, including Southeast Asian countries, have already felt the pinch of the surge in commodity prices, compounded first by the pandemic, and then by the U.S. interest rate hike and balance sheet reduction.
As the world’s largest economy, the United States must shoulder its responsibilities for world economic recovery, rather than push up inflation in developing countries.