Leo Liu said:
However...
Inflation rates for both the US and China have been astonishing since the onset of the pandemic, as they are shown below. It is interesting to note that while the inflation rate of China reached its highest point in 2020, the data for the US topped in 2021. It is possibly because the federal government approved several stimulus package so that American people have more money to spend, whereas in China most people did't get any helpful financial aid and the government tried to stabilize the prices of commodities.
That's a reasonable argument.
China definitely didn't blow out their deficits the way the U.S. did and part of that had to do with better containing the virus and people cooperating on things like social distancing, masking wearing, and the like. When we were getting a summer 2020 virus wave (July/August) last year, there were pictures (granted, it's hard to tell how accurate of a reflection they are of reality in China, given possible propagandistic media) of CEOs and business executives in China having meetings without masks, concert-goers partying, and people at water parks - all without masks. China's control of COVID and return to normal/growth has been smoother than the U.S.
But, additionally, China's used this period to deleverage their corporate debt markets (ongoing right now), so there are some deflationary pressures keeping inflation in check, even as growth renormalizes. This is contrasted with the U.S., where the corporate bond market was bailed out by the Federal Reserve. 20% of S&P 500 companies are "zombies" - so overly indebted that they have to issue new debt just to pay the interest on existing debt. When those zombie companies deleverage (be it 2022...2023 or whenever), there could be some deflationary pressures in the U.S. too. Deleveraging usually leads to slowed hiring (or outright layoffs) and cuts in R&D and other investments/capex to repay debt.
For the moment, we're seeing inflationary pressures not seen in the 2008-2009 GFC. That's partially due to the addition of fiscal stimulus we didn't get in 08-09 (where it was mostly monetary - low interest rates + QE). We had $8.8 trillion in stimulus ($5 trillion fiscal and $3.8 monetary) in 2020-2021. a good portion of which got into the hands of every day consumers vs. getting trapped in financial asset markets (like 08-09's recessionary response).
Money velocity (turnover) is higher when it is in Main Street's hands vs. that of the wealthy usually, as everyday people need that money to spend on necessities. Whereas, the wealthy already have money to buy what they like and giving them more money doesn't necessarily produce the same velocity. E.g., If Joe spends $5 tipping a cab driver, then that cab driver might spend that $5 on a hot dog for lunch. The hot dog stand owner may take that $5 and spend it on a pair of socks he needs. In that example, you have a velocity of 3. Each dollar put into the system produced a turnover of 3 transactions. Giving that same $5 to Bill Gates, Warren Buffet, Jack Ma, Pansy Ho, etc. may have a turnover (velocity) of 0.
Having said that, money velocity is still not that high (and survey data has also shown that people plan to spend only about 25-30% of their stimulus money and use the rest to pay down debt and save/invest), so that, alone, is not all that is causing inflationary pressures. We have various bottlenecks in the economy caused by supply chain issues and labor shortages that are also contributing to rising prices.
It remains to be seen if these get resolved going into next year. For the time being, it's pretty brutal for those who are renters and have lower incomes not well-suited to absorb inflationary pressures.
