Inflation in the US has reached its highest level in forty years and is creating havoc with top political figures. The president, Joe Biden, and Democrats in Congress are taking the heat for the rising cost of living. This comes at the worst possible time with midterm elections around the corner.
Core inflation rose 6.4% in a year
US inflation has skyrocketed in recent years, putting severe pressure on families. The cost of essentials such as food, rent, and petrol have risen. Lower-income, Hispanic, and Black Americans are disproportionately affected. Last week, US President Joe Biden was scheduled to speak on the price hikes. He was to make his remarks at the Port of Los Angeles, which has been closed for more than a year.
Consumer prices rose to their highest level in four decades last month. The rise was largely due to rising housing costs, which account for about one third of the government’s consumer price index. Housing costs are expected to continue rising in the short term, as well. Nonetheless, there’s little chance of a reversal anytime soon. According to the government’s report, inflation rose 0.8 percent last month after rising by 0.6 percent in December.
The inflation figures were revised based on consumer spending data for the period of 2019-2020. Inflation will likely remain high for some time, as the delayed effects of rising wages are not fully felt. Meanwhile, employers are increasing compensation to recruit and retain workers. And as labor costs rise, consumers’ purchasing power is shrinking.
A tight job market is also feeding inflation. According to the Federal Reserve Bank of Atlanta’s wage tracker, annual wage growth was 5.1% in January, the fastest rate since 2001. Despite these positive indicators, the inflation rate remains well above the pace of wage growth for most workers, limiting their spending power.
Energy prices accounted for about half of the month-over-month increase in prices. Gasoline prices have risen by almost 60 percent since last year. Similarly, the cost of dental services rose by 1.9% in the same month, making it the fastest one-month increase since 1995. Core prices, excluding volatile food and energy prices, rose by 0.7% in May. This means that consumer prices are now 6.8% higher than one year ago.
Housing costs have risen sharply
The US housing market has seen an extraordinary rise in home prices. According to a recent report from the National Association of Realtors, the median price of existing single family homes increased by 15.7% over the past year. Some metro areas experienced even greater gains. The report also indicates that the recent spike in mortgage rates hasn’t slowed the growth of home prices.
This unprecedented increase in house prices is being attributed in part to robust demand for housing, coupled with a relatively stagnant housing supply. The low mortgage rates have made housing more affordable for many families, while forced isolation has resulted in a greater demand for more living space. In addition, a lack of construction labor has contributed to a lack of available houses, which means that existing homeowners aren’t willing to sell their homes. However, recent housing data suggests that the housing market will soon move away from these extremes.
Another factor contributing to the rising prices of homes is the fact that many building materials aren’t manufactured in the US. They are imported from other countries. Political developments and trade agreements have resulted in changes in the price of these materials. Tariffs on imported materials have also risen home building costs. Moreover, the decline in home building has also contributed to the increase in housing costs. During the Great Recession, many builders faced losses.
Despite the recent rise in house prices, many economists believe that it will soon be back to normal. The demand for homes is currently outpacing the supply of houses, and this trend is likely to continue until early 2020.
Food prices rose 1%
The United States economy is grappling with a severe problem: rising prices. As a result, many Americans are finding it increasingly difficult to afford essentials. Inflation is now the most pressing economic issue in the country, according to economists. It has weighed heavily on Congress, President Biden and many Americans. Consumer confidence has fallen to new lows, and the pace of wage increases has stagnated.
A number of factors are behind the spike in prices. One of the biggest factors is the cost of gas. While the price of gasoline has declined in recent months, the price of food has shot up. In January alone, grocery prices jumped about 1 percent. Overall, food prices have increased by more than 7 percent in the past year. Meanwhile, energy and food prices are up by nearly twenty-five percent, although gasoline prices decreased by 0.8 percent.
The US consumer price index rose by 0.6% in January after gaining 0.3% in December. That makes it the biggest year-on-year increase since August 1982. The higher prices were due to the rising rental and energy costs and the shortage of certain goods. However, the increase may slow in the coming months as supply bottlenecks and coronavirus infections ease.
The rise in US consumer prices is raising fears for consumers and the economy. The US government has a mandate to control inflation by limiting its impact. The goal of the Federal Reserve is to keep interest rates low and lower costs. It is important to keep an eye on inflation as it has a direct impact on all sectors of the economy.
The cost of groceries rose by 1.4% last month compared to a year ago. The cost of food was the biggest factor contributing to the price increase, while airfare was up 2.3%. The cost of new cars remained stable in November, while the cost of used cars rose by 1.5%. The rise in new car prices means that used cars are rising by 41% by 2022.
Imports increased to a record high in December
Imports of consumer goods increased in December, but there were also declines in nine product groups. The largest decreases were in clothing, miscellaneous goods, and petroleum refinery products. The increase in imports was 8.0% year over year, but the increase in real terms was slightly lower.
Imports of goods and services increased by 67.9%, and manufacturing, transportation, and utility equipment were among the fastest-growing. In December, exports of electronic goods and services increased by nearly seven percent. Exports of consumer goods reached a record high in December.
Imports increased in December, but the goods trade deficit was still high. The deficit was $101.4 billion last month. Imports grew by 2.0% in December, reaching a record high of $259.7 billion. The increase was partly due to goods that had been delayed on ships for months. However, port backlogs remain high. The figures indicate that goods imports may be set for another record high in January. However, imports typically peak ahead of the holiday shopping season and taper off in the first quarter.
Imports rose in December due to higher demand. In the first nine months of FY22, the country’s imports increased by 21% and exports by 4%. The trade deficit with China increased by $6.0 billion in December. The increase in imports is expected to continue through the rest of the year, though the trade deficit has been a problem for many years.
As the economy grew, so did the deficit. Imports increased by $7.0 billion on an annual basis. This was still a substantial increase, but the deficit was still small compared to exports. In addition, the United States spent $1.4 billion on net balance of payments adjustments, while the import of consumer goods increased by $4.2 billion.
Interest rate hikes aimed at slowing inflation
The Fed is hiking interest rates in hopes of slowing inflation. The higher interest rates have an effect on the cost of borrowing and boost rates for savings accounts. Its goal is to slow inflation to 2% annually. However, it is not clear how this policy change will affect the economy.
Many economists are concerned that the Fed will raise rates too quickly, dampening demand and potentially stalling the economy. A stalled economy can lead to higher unemployment and higher prices. Moreover, if rates increase too fast, it could push the economy into a recession and reverse any gains the economy may have made. Therefore, the Federal Open Market Committee monitors economic data very carefully to make sure the interest rates are the right level.
The impact of monetary policy tends to be slow, taking nine to 12 months for the effects to be felt in the economy. However, the price stability campaign is already having an impact. The chief US economist at Oxford Economics predicts that inflation will start to slow down by the middle of next year and ramp down to 2.8 percent by the end of 2023.
The Federal Open Market Committee’s goal is to keep inflation at a low level. The Fed has been struggling with inflation and has raised interest rates twice since December 2014. Earlier this year, the Fed raised rates for the fourth time, bringing them to their highest levels since 1994.
The Fed’s policy is aimed at slowing inflation by increasing interest rates. The higher interest rates mean that consumers will have less money to spend. Since people will have less money to spend, this will lead to lower prices. However, it can cause some problems for the supply chain.