Inflation shoots up to 7% in the United States and increases pressure on the Federal Reserve to raise rates

The dynamism of the economy and problems in the supply chain are increasingly heating up prices in the United States. Inflation rose 7% year-on-year in December, a level never seen since 1982, driven by higher prices in sectors such as the sale of used cars, food and housing. In November the figure reached 6.8%. The data published this Wednesday increases the pressure on the Federal Reserve to start raising interest rates in March, currently at zero. In monthly terms, the consumer price index (CPI) rose 0.5%, after the 0.8% advance in November, according to figures from the Labor Department.

The desire of Americans to consume, to buy cars, apartments, to fill the refrigerator and eat more at home, is running into a string of difficulties to meet that demand, the almost endemic shortage of microchips, the winter storm and the shake of the omicron variant. As a result, prices are advancing at an increasingly disturbing cruising speed, which also creates problems for the Joe Biden government, which cannot get all the political payoff it would like from economic and employment growth.

Economists insist that once supply chain bottlenecks are unlocked, a scenario triggered by the pandemic, inflation will fall. The question is how much and, above all, when. Wells Fargo Bank Director and Investment Economist Sarah House told The Wall Street Journal that inflation is “likely” to peak in the coming months. “The general pace will continue to be a challenge for consumers, businesses and economic policies,” he told the local newspaper.

The president of the Federal Reserve (Fed), Jerome Powell, was optimistic on Tuesday in the Senate and considered that the supply of products will normalize this year and assured that the body he directs is ready to do whatever is necessary to prevent the high inflation will “take hold.” “If it is necessary to raise rates for a longer time, we will,” he told the Banking Committee, as part of the process to be reelected for four more years in his post.

The string of variants of the coronavirus has so far prevented prices from stabilizing. The highly contagious omicron has impacted the tourism industry, leisure and other in-person services. Since the health crisis broke out and factories were forced to close, demand for cars, furniture and other durable goods has skyrocketed. This imbalance further strained supply chains.

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The biggest example is the shortage of electronic chips, which has affected car production, and has sent prices skyrocketing. But now the pressures on the pockets of American households are not just about durable goods. Meat, gas, rents are part of the list of expenses with significant price increases. The number of categories that experienced inflation of 3% or more in the past year nearly doubled since December 2020, the highest proportion since 1991.

Excluding volatile food and energy components, the CPI rose 0.6% last month after rising 0.5% in November. In the 12 months to December, so-called core inflation accelerated 5.5%. This is the highest year-on-year gain since February 1991 and followed a 4.9% advance in November.

It’s not just the prices that go up. Average hourly wages increased 4.7% in December from a year earlier, and about 3% from pre-pandemic levels. This has exercised the spending muscle of the working class, but it has also contributed to rising inflation. Many companies have passed on the costs of maintaining labor and materials to consumers, who are paying a higher price for products.

The US government announced last Friday that the unemployment rate fell to 3.9% in December, its lowest level in the last 22 months, which suggests that the labor market has reached, or is approaching, full levels. job.

Americans are increasingly concerned about the economy than handling the pandemic, something that may hurt Democrats heading into the November legislative elections. Only 37% see the virus as one of the top five priorities for the Biden administration in 2022, compared with 53% who answered the same a year ago, according to a survey by The Associated Press-NORC Center for Public Affairs Research at the beginning of December 2021. In the open question on their main concerns, 68% mentioned the economy, similar to the figure of December 2020. However, the concern about inflation stood at 14%, compared to less than 1% registered a year ago.

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