Wed. Jan 26th, 2022

US consumer price growth is expected to rise at the fastest pace in nearly four decades in December, as the Federal Reserve is concerned about the threat of rising inflation and its consequences for economic recovery.

According to a consensus forecast compiled by Bloomberg, the consumer price index (CPI) rose by an annual average of 7 percent last month, a step higher from the 6.8 percent rate recorded in November.

However, month-on-month price increases are expected to moderate to 0.4 per cent between November and December, down from 0.8 per cent in the previous period. The data will be released Wednesday at 8:30 p.m.

“Core” inflation, which wipes out volatile items such as food and energy, is expected to accelerate to an even greater extent compared to the last reading. Economists predict that core CPI will have jumped to 5.4 percent, well above the previous 4.9 percent annual rate. That equates to another 0.5 percent monthly increase.

The new data comes just a day after Jay Powell, chairman of the US Federal Reserve, warned high inflation is a “serious threat”To the recovery of the labor market and reaffirmed the central bank’s intentions to rapidly reduce its monetary policy support.

Senior officials began outlining their plans to raise interest rates from their near-zero levels once they reached their dual targets of maximum employment and inflation, which averaged 2 percent over time.

December data are expected to show further signs that inflation is picking up in a broader cross-section of the economy and running a greater risk of being hedged.

The December inflation reading is expected to put pressure on the Biden administration over its management of the economy heading into the 2022 midterm elections. While the US president led a booming economy that created more than 6 million jobs last year while the unemployment rate fell to 3.9 percent, the perception of a strong recovery was undermined by the rise in prices and supply chain disruptions.

“It is, of course, an area of ​​real challenge. . . “Americans feel the price pressure,” a senior White House official told the FT. “While projections expect moderation [of inflation] Throughout the year, the president and the administration are focused and try to move it forward as much as possible. ”

The White House has sought to reduce bottlenecks at key ports, curb anti-competitive behavior in certain markets such as the meat industry and encourage more oil production worldwide to lower petrol prices. However, it has refrained from adopting other anti-inflationary measures, such as the removal of tariffs on Chinese imports.

Coupled with recent progress in the labor market – with the unemployment rate falling to below 4 per cent and wage increases picking up amid an almost record shortage of workers – economists now expect the Fed to raise interest rates in March, with two or three more adjustments taking place later in the year.

The Fed has also indicated that it is ready to start reduce the size of its $ 9tn balance sheet at some point in 2022 by no longer reinvesting the proceeds of its obsolete treasury and agency mortgage backed securities.

This process, called runoff, is likely to happen “sooner and faster” than when the central bank last tried to cut its portfolio in 2017, Powell said Tuesday.

No firm plans have yet been decided on when the balance sheet could start shrinking and how fast the Fed can continue.

Raphael Bostic, President of the Atlanta Fed, Tuesday said it supports the balance sheet, which falls by at least $ 100 billion every month after the first expected interest rate hike in March. At least two more interest rate adjustments will be appropriate in 2022, he said.

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