US inflation, debt and political bickering: Up, up, up

With inflation refusing to go away and with trillions of dollars of federal spending in the pipeline, questions are being raised about the impact on the US and global economies.

Asked what the result of such a mix would be, Robert Dekle, a professor of economics at the University of Southern California, said: "Weaker dollar, lower demand for US bonds, danger to US dollar status as a reserve currency. The US needs to return to fiscal and monetary normalcy ASAP."

US consumer prices rose 5.4 percent last month from a year earlier, a rise similar to that of June, the highest 12-month level since 2008, the Labor Department reported on Wednesday. Pent-up demand from the pandemic and government stimulus spending are factors in consumer demand.

Gasoline is now nearly $1 a gallon more expensive than it was a year ago. The price rose 2.4 percent last month and has risen since early November to levels not seen since 2014, with a national average of $3.14 a gallon, according to GasBuddy, an online platform that tracks gasoline prices across North America.

The Biden administration on Wednesday asked the Organization of Petroleum Exporting Countries, OPEC, to increase oil production.

That action sparked criticism from proponents of an extension of the Keystone XL oil pipeline in the US, work on which US President Joe Biden halted on his first day in office.

"You'd think the first place you would go would be American producers, rather than OPEC, which literally held this country hostage for decades because they were our top supplier," Mike Sommers, president of the American Petroleum Institute, told CNN Business.

A White House official told CNN: "President Biden has made clear that he wants Americans to have access to affordable energy, including at the pump."

Overall consumer price

The overall consumer price index from June to July fell from 0.9 percent to 0.5 percent.

"It's like the equivalent of going from a 104-degree to a 101-degree fever," The Wall Street Journal quoted Aneta Markowska, chief financial economist at Jefferies, as saying. "It's just not as hot as what we saw in the prior three months."

After a meeting on July 28 the Federal Reserve explained why it would keep interest rates near zero, saying, "Inflation has risen, largely reflecting transitory factors."

Congress also has not raised the "debt ceiling", which caps federal spending, and Republicans are not expected to vote to do so for a Democratic-led spending plan.

"I cannot believe the Republicans will let the country default," Senate Majority Leader Chuck Schumer said on Wednesday. "It has always been bipartisan to deal with the debt ceiling."

During the presidency of Donald Trump, Schumer said, Democrats worked with Republicans to raise the debt ceiling three times as the national debt rose from less than $20 trillion to over $27 trillion.

Congress has pumped trillions of dollars into the economy as a result of the pandemic, followed by a $3.5 trillion budget resolution passed by the Senate on Wednesday with no Republican votes. The plan still needs to be approved by the full Senate.