By Fortune Abang

Mr Muhammad Aimen, an investment analyst at KTrade Securities, stated on Saturday that the surge in U.S. inflation to 3 per cent could pose economic challenges to global trade.

KTrade Securities is a Pakistan-based stock and commodity firm.

Aimen shared his insights during the global virtual analysis of KTrade Securities’ research report.

He noted that U.S. inflation had surged to 3 per cent one month after President Donald Trump took office.

He said this marked the first such rise since June 2024.

He highlighted concerns about inflation risks, which stemmed from the fiscal deficit fuelled by rising debt and complicated by tariffs.

According to Aimen, these factors have slowed down the U.S. economy, which now shows signs of a recession.

He emphasised that the U.S. tariffs approach, focused on domestic priorities, might not effectively address structural issues in the economy.

Aimen said instead, it could exacerbate the very problems it aimed to prevent.

“The U.S. national debt has ballooned to 123 per cent of its GDP, raising serious concerns about fiscal sustainability,” Aimen noted.

He said with such a high debt burden, the Federal Reserve’s monetary policy was taking a backseat to government spending and taxation, which would likely fuel inflation.

“The government may be forced to monetise the deficit, essentially printing money to cover shortfalls.”

Aimen also pointed out that fiscal deficits, rather than bank lending, were the root cause of inflationary pressures in the U.S. economy, making the government’s ability to manage inflation via interest rates less effective.

He cited the Congressional Budget Office (CBO) Outlook report, which raised concerns about the effectiveness of the Department of Government Efficiency (DOGE) in cutting spending.

This was particularly concerning given the high mandatory expenditures, such as social security, Medicare, and defense spending.

“Whenever a nation exceeds 100 per cent debt, it almost always inflates away the debt.

“The U.S. is likely to face an extended period of financial repression, where inflation outpaces economic growth,” Aimen predicted.

He also drew parallels between the current Consumer Price Index (CPI) cycle and the high inflation period of the 1970s, raising concerns about a potential repeat of that era’s economic struggles.

Aimen also discussed the potential effects of tariffs on China, Mexico, and Canada, the U.S.’s largest trade partners, which could stoke inflation by limiting access to cheaper labour and goods.

He warned that the deportation of immigrants could lead to higher domestic prices, as 15 per cent of U.S. workers in construction, manufacturing, and agriculture were immigrants.

Even if these tariffs bring some manufacturing back to the U.S., Aimen questioned whether these industries would be competitive in the global market.

“In other markets, Chinese manufacturers will continue to gain share, and the U.S. risks being shut out,” he said.

In spite of the dollar’s status as the global reserve currency, Aimen noted lingering concerns among investors about the U.S. economic sustainability.

These concerns, he said were driven by factors such as the devaluation of other currencies in response to tariffs, demand for dollar-denominated debt, and a weaker tax revenue base caused by higher unemployment.

“Higher unemployment means weaker tax revenue, compounding the deficit problem.

“With an aging population adding to entitlement costs, a debt spiral is a real possibility without a course correction,” he warned. (NAN) (nannews.com.ng)

Edited by Abiemwense Moru