American households saved the global economy when it needed a consumer of last resort; For several decades, America’s recent spending spree has brought a problematic end. Stuck at home in the midst of the pandemic, people around the world are buying more goods (TVs, laptops, and exercise bikes, to name a few) at the expense of services like hotel accommodations and gym memberships.

The shift was much greater in the United States than in other rich countries. This reality was exacerbated by retail companies such as Target and Wal-Mart, which had accumulated more goods than Americans wanted to buy. As these commodities are traded globally – with supplies restricted by COVID-19 – US demand has driven up prices in other countries as well. In fact, the US has been exporting inflation as it recovers from the pandemic.

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This confirms a profound change in the global economy. In the pre-Covid world, merchandise was plentiful and the challenge was finding buyers. Countries such as Germany and China, which have large trade surpluses, are often blamed for taking free advantage of demand generated elsewhere and not contributing enough of their own demand. By contrast, the US trade deficit was seen as a boon to other economies.

In the new age of scarcity, that story has been turned upside down. “It’s the opposite now,” says Jason Furman, professor of economics at Harvard University. “There was too little demand, now there is too little supply. And in a world with too little supply, the country that does its best to generate demand, the United States, is exporting its problem. It is inflation.

different anxiety
Evidence is now emerging that US consumers are reducing demand as the Federal Reserve raises interest rates to cool the economy and fight inflation. As for the rest of the world, this could create a different concern as the US turns to export inflation through another channel: the very strong dollar. It is reported that with interest rates rising in the United States much faster than in the Eurozone and Japan, the dollar is rising; Last week, the euro was par with the dollar for the first time in two decades. This makes goods imported from the United States – and all kinds of goods that are usually priced in dollars, especially oil – more expensive relative to other countries.

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“US demand will fall but the mechanism by which that will happen will also account for a stronger dollar, so this will not necessarily solve the problem of inflation that the US is exporting to other countries,” Foreman forecasts. There is no doubt that consumer demand is only one reason for rising inflation worldwide; It is arguably not the main cause even in the US, where the stimulus associated with the Covid pandemic has been greater. In Europe and elsewhere, energy and food costs are driving up inflation as Russia’s invasion of Ukraine exacerbates pandemic-induced breakdowns in supply chains.

However, at least some inflation in Europe is imported across the Atlantic, according to Holger Schmieding, chief economist at Berenberg Bank in London. “Not directly in the sense that we bought expensive things from the United States; But in the sense that the United States and the great demand in it after the stimulus controls, contributed to supply bottlenecks around the world, and to the rise in prices.

Since pandemic-related inflation began last year, it has been more inflationary in the United States than in Europe. The gap has recently narrowed, but that doesn’t tell the whole story. In fact, the two economies may have similar inflation rates, but they are of different types, with major implications for how central banks address the problem. A large part of the distinction boils down to the magnitude of domestic price pressures.

pressure on Europe
In the United States, increased household demand, especially for goods, played a larger role. “This is the kind of inflation that doesn’t go away on its own,” according to Ana Luis Andrade of Bloomberg Economics. This is one reason why the Fed is expected to raise interest rates by more than the European Central Bank will.

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But if US consumer spending is driving US inflation, that is at least something the Fed can fix. Moreover, monetary policy is a blunt instrument that controls prices by lowering domestic demand. And when inflation comes from abroad, as it does in almost all of Europe, there is a risk that higher ECB rates will only slow the economy without addressing the causes of higher prices.