U.S. Inflation Hits 40-Year High

170

U.S. prices continued to rise, with inflation rising 7% in December from a year earlier, the highest since 1982, and the seventh consecutive month that the U.S. inflation rate exceeded 5%. While the epidemic has not subsided, inflationary pressures in the United States are likely to continue.

On Wednesday, January 12, local time, the Labor Department said that the consumer price index (CPI) rose 0.5% in December from the previous month and rose 7% from December 2020. The core price index rose 5.5% year-on-year in December, the highest increase since 1991.

Specifically, within the sub-categories, prices rose the most for commodities, new cars, used cars and trucks. Used car prices, which have been a driver of soaring inflation during the pandemic, rose 3.5% month-on-month in December and 37.3% from a year earlier, as supply chains restricted new car production.

Meanwhile, housing costs rose 0.4% month-on-month, and the year-on-year increase rose from 3.84% to 4.13%. This was the fastest pace of growth since February 2007.

Separately, service sector inflation rose to 3.7%, the highest level since January 2007; goods inflation surged 10.7% year-on-year, the highest level since May 1975.

Although the increase in each indicator is obvious, according to Liu Yuanchun, vice president of the Renmin University of China and a professor at the School of Economics, the result did not exceed market expectations.

According to statistics from the US TradingEconomics website, inflation in the United States has remained at a high level for six months. Since May 2021, the US inflation rate has exceeded the 5% mark, and then climbed to 6.8% in November. The data is also expected.

Inflation has become the top pressure in the United States since the monetary policy "big release". Last year, the American people experienced an expensive Christmas. According to data released by financial services company PNC, the Christmas price index in 2021 rose by 5.7% compared with 2019 before the new crown, the largest increase in eight years.

CNBC joked in the report: "If this Christmas presents, it's true love."

Norman Brown, director of sweet potato sales at WadaFarms, North Carolina, was miserable, paying truck drivers almost twice as much as he usually did over Christmas last year. "I've never seen anything like this, I've been in the business of sweet potatoes for thirty-eight or nine years. I don't know what the answer is, but it's all going to be passed on to the consumer in the end."

"From the current point of view, one is the rise in rent prices and the other is the rise in used car prices. These are the two core reasons." Liu Yuanchun pointed out, "But the problem cannot be simplified. Whether the big reason is caused by the epidemic, currency over-issuance, or supply chain problems caused by the epidemic requires more in-depth analysis."

It's all about the supply chain. "What we have now is a mismatch between supply and demand. In areas where supply is constrained, we have very strong demand," Fed Chairman Powell said bluntly on January 11.

Even wages are rising, and Labor Department data show that wages are not keeping pace with rising prices. As companies rise, business costs increase, leading to further increases in prices. This means that the upward spiral of wages and prices is emerging.

In December, about 49 percent of small businesses said they planned to raise prices on their products within the next three months, according to the National Federation of Independent Business, a trade association, which is close to the highest percentage since records began in 1986.

However, Powell is more optimistic about the supply chain problem, which he believes will ease this year. Constance Hunter, the chief economist at KPMG, backed this up, arguing that booming commodity demand will reverse in the first half of 2022: "As people spend their savings and the pandemic improves, we'll get back to some normalcy. status."

While economists and the Federal Reserve expect inflation to ease this year as supply bottlenecks are removed and demand normalized, the outlook for the economy is uncertain amid the resurgence of the virus in the U.S. as the coronavirus mutates Omicron. Certainty has increased.

With inflation stubbornly high, the Fed is about to take action. On January 11, Powell said, "If inflation persists at high levels for longer than expected, we will raise interest rates more over time."

The market is widely expected that the Fed is very likely to start raising interest rates in March. Federal Reserve official Bullard has said that the Fed may raise interest rates four times in 2022.

Liu Yuanchun said frankly that raising interest rates is imperative. But he also cautioned against the turmoil in the world economy caused by higher interest rates. "This will constrain global financial markets, especially China's next monetary policy," he said. "Inflation in the United States, coupled with rising inflation in Europe, the United Kingdom and some developing countries, for now, this year's The global inflation situation is no longer easing. This may also lead to the continued rise in commodity prices, and therefore may also lead to an increase in import costs, which will have an impact on some import-intensive industries."