Highest inflation in 13 years: US inflation overtakes even “greatest pessimists”


Highest inflation in 13 years
US inflation overtakes even “greatest pessimists”

Due to special and catch-up effects in the wake of the corona crisis, prices in the USA have skyrocketed. Economists had predicted that this inflation would slowly decrease. But the opposite is true. The Fed is under “heavy pressure”.

US consumer prices accelerated their rise again in June. Goods and services were 5.4 percent more expensive than in the same month last year. Compared to the previous month of May, prices rise by 0.9 percent, as the US Department of Labor reported. That is the highest increase in 13 years and almost twice as much as economists had expected. According to surveys, economists had only expected a rate of 0.5 percent in a month-on-month comparison. For many observers, the inflation rate had already risen surprisingly sharply in the past few months.

Also in the core rate, which excludes the particularly volatile prices for energy and food, the prices rose by 0.9 percent compared to the previous month. The price index for used cars and trucks rose sharply in June by 10.5 percent. This increase accounted for more than a third of the seasonally adjusted increase of all items. Food prices rose by 0.8 percent and thus more than in May with 0.4 percent. The energy index rose by 1.5 percent, with gasoline prices increasing by 2.5 percent.

“The spook of inflation is not over yet,” said economist Bastian Hepperle from Bankhaus Lampe. At the moment, it was mainly energy prices, but also corona-related catch-up effects, which were causing sustained inflationary pressure. But all of these influencing factors are not permanent and will soon lose their driving force.

The US Federal Reserve (Fed) also assumes that rising inflation will remain a temporary phenomenon. Because compared to the previous year, there are high rates of price increases due to the economic downturn in 2020. The Fed continues to support the economy with monthly cash injections of $ 120 billion. It wants to hold on to bond purchases until substantial progress has been made on price stability and unemployment.

According to LBBW economist Dirk Chlench, the latest data is now putting the Fed “under heavy pressure” to end its expansionary course. Even the greatest pessimists would not have expected such a sharp rise in inflation. “The general expectation was that the price jumps associated with the end of the corona restrictions, for example for hotel accommodation and flight tickets, would slowly subside,” writes Chlench in a comment. But this is obviously not the case. “We are now recording a significantly higher inflation rate for the fourth month in a row. In the past six months, consumer prices have shot up at a rate of 7.3 percent when projected over the year,” the analyst calculates.

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