Thu. Jan 27th, 2022

Consumers in the United States can be forgiven if they feel trapped in an unpleasant time cycle, with the latest government figures showing that inflation rose at the fastest annual rate in 40 years last month.

The Consumer Price Index (CPI), which measures price changes in a basket of goods and services, rose 7 percent in December compared to the same period a year ago, the U.S. Department of Labor said Wednesday. This is the sharpest increase of 12 months since June 1982.

On a monthly basis, the CPI rose by 0.5 per cent in December after rising by 0.8 per cent in November.

Rising inflation has become a feature of the US economic recovery, as the supply chain tightens and shortages of materials and workers increase costs for businesses. Companies, in turn, pass on at least a portion of those higher input costs to consumers.

Inflation is particularly difficult for low-income households, which see a larger share of their income being consumed by rising prices, especially for necessities such as food, fuel and shelter.

A very worrying pressure point is rising rents, which along with prices for used cars and trucks were the biggest contributors to December’s CPI rise.

On a better note, while food prices rose 0.5 percent last month, they rose less sharply than in previous months. And natural gas prices – on which nearly half of U.S. households rely as their primary heating source – have fallen along with gasoline prices, which have ended a long series of rises.

Syrup food and energy, which tend to be CPI’s most volatile components, and the so-called core index rose by 0.6 per cent in December, after rising by 0.5 per cent in November.

Over the past year, core CPI rose by 5.5 percent last month – the sharpest annual rise since 1991.

Inflation and interest rates

Inflation is running so hot that the US Federal Reserve turned away late last year to keep borrowing costs low to get Americans back to work and to keep rising price pressures in check.

At its last policy meeting, the Fed said it was accelerating its slowdown in bond purchases – which boost job growth but boost inflation by keeping long-term borrowing costs low – and to sign at least three inflation-cooling interest rate hikes this year. .

A little inflation is a good thing, because it keeps the economy in turmoil by enticing consumers not to delay purchases. This is extremely important because consumer spending drives about two-thirds of U.S. economic growth.

But too much inflation is certainly bad, because if prices spiral upwards, and most importantly – consumers expect them to keep rising – it could lead the Fed to raise rates more aggressively than expected and a good blow to the economic recovery. liver.

During his confirmation hearing Jerome Powell said on Tuesday for a second term as Fed chairman that he and his fellow policymakers do see inflation declining by the middle of this year. But he also reassured senators that if the Fed sees that “inflation continues at higher levels than expected”, he will take action.

“If we have to raise interest rates more over time, we will,” he said, adding that “high inflation is a serious threat to achieving maximum employment and to achieving a long-term expansion that we can give it.”

Meanwhile, the recovery of the US labor market remains on track. While the economy added a disappointing 199,000 jobs in December, the country’s unemployment rate fell to 3.9 percent as it reached its pre-pandemic level of 3.5 percent.

Nearly a record number of jobs have led companies to sweeten pay and benefit packages to scare job seekers. To some extent how confident workers feel about their job prospects, they are resigned their jobs in record numbers – often to take higher paying positions.

This is reflected in the average hourly earnings for all workers, which increased by 4.7 percent in December compared to the same period a year ago.

Source link

By admin

Leave a Reply

Your email address will not be published.