7% inflation in the US: the highest in the country in 40 years

Consumer prices in the United States soared 7 percent in 2021, the highest rise since 1982, a major concern for President Joe Biden, who vowed to halt the inflationary spiral.

Energy prices rose 29.3 percent and food prices 6.3 percent, according to the CPI index (CPI) released by the Labor Department. If these volatile sectors are excluded, core inflation reached 5.5 percent, its highest level since February 1991.

President Biden assured, when these data were known, that some “progress” has been registered in the fight against inflation, when comparing monthly figures.

In a statement, the president highlighted a significant reduction in inflation in the last month.

“Increases too high”

“The report shows that we are making progress,” but “at the same time, (…) we have more work to do as price increases are still too high and put pressure on families’ budgets,” he said.

The Federal Reserve’s business report known as the Beige Book, published yesterday, in effect noted that more businesses began to notice a slowdown in price increases in late 2021.

The Republican opposition, meanwhile, reproaches the Democratic president for an expansive spending policy, and criticizes what it calls “Bidenflation.”

“Biden doesn’t seem to care that Americans can’t afford anything from gasoline to food products,” the Republican Party tweeted.

Demand, however, remains very solid, with bank accounts reinforced by official aid.

Public Enemy

Inflation, which many economists, including those in the White House and the Federal Reserve, viewed as a transitory phenomenon, became “public enemy number one.”

The Fed’s inflation target stands at 2 percent per year, well below the record published yesterday.

In December, however, inflation slowed compared to November, to 0.5 percent from 0.8 percent.

But core inflation was higher in December than in November (0.6 percent versus 0.5 percent respectively).

The index that specifically measures energy prices “fell back in December” and thus ended with “a long series of increases,” the Labor Department statement said.

In December, it was mostly house prices and used cars that rose the most. Food products “also contributed” to the rise “although they rose less than in recent months,” the report noted.

“Inflation can be managed, and central banks know how to do it,” reacted IMF director Kristalina Georgieva.

Mismatch between supply and demand

The omicron variant of coronavirus could drive prices higher. The high number of infections leads workers to quarantine and thus hits the production and delivery of products, which in turn affects demand and pushes prices up.

Fed Chairman Jerome Powell, who had his Senate confirmation hearing Tuesday for a second term at the head of the central bank, vowed to act if record inflation persists into the second half of the year. The agency is willing to increase its rates more than expected.

If the inflationary push continues beyond the middle of 2022, “we will react accordingly,” Powell said.

“To ensure a sustainable expansion (ndlr: of the economy), we must have price stability,” continued Powell in his statements to lawmakers.

The official attributed most of the rise in inflation to a “mismatch” between supply and demand caused by disruptions in the supply chain. And he emphasized that recovering price stability is a priority for the Fed.

The future number two of the central bank, Lael Brainard, similarly said that inflation in the United States is “too high” and that the Federal Reserve makes it a priority to lower it, in a speech prepared for her confirmation hearing in the Senate on Thursday. , and released in advance yesterday.

The weight of wages

Powell also described an economy with a labor market that is recovering “incredibly fast” from the crisis caused by the pandemic.

In fact, workers find jobs easily, to the point that each month millions of people quit to opt for a better career opportunity and a higher salary.

In December, unemployment in the United States fell to 3.9 percent, returning to near its pre-pandemic level (3.5 percent), Powell noted, although he acknowledged that returning to work for some people remains difficult. despite the large number of vacancies.

The higher wages that many employers offer to attract candidates or keep their employees fuel inflation. (AFP)

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