Inflation in the United States has reached 7% for the first time in 40 years, the latest indicator of the global cost of living crunch on consumers.
Increased prices for used cars – up 37% year over year – and higher rental expenses added in last month’s consumer price index (CPI) increase.
• Inflation in the United States reached 7% for the first time in 40 years. The rate is at its highest level while Ronald Reagan took office in June 1982.
• Prices have skyrocketed as Americans increase their spending. The World Bank warns of a global slowdown in growth due to rising inflation and new COVID-19 pandemic variants.
• In December, inflation in the United Kingdom reached a decade-high of 5.1%, and by Election Day, the White House anticipates inflation will be around 3.5 percent.
The inflation wave is wreaking havoc on the world’s largest economy.
Food and fuel prices have also risen rapidly, increasing political pressure on President Joe Biden and the Federal Reserve, America’s central bank.
The US Bureau of Labor Statistics (BLS) announced the year-on-year inflation rate increased from 6.8% in November – already the highest level since Ronald Reagan took office in June 1982.
Mr. Biden responded to the latest numbers by noting that while progress slowed the inflation rate, there was still “more work to be done with prices remaining too high.”
The data further bolstered anticipation that the Fed will begin raising interest rates as early as March – following Fed Chair Jerome Powell’s statement that the Fed was prepared to intervene to prevent “entrenched” inflation.
Prices have been rising as Americans increase spending when the world’s largest economy struggles with labor and raw material shortages and larger supply chain bottlenecks.
The inflationary surge is canceling out the benefit of many US workers’ robust pay increases.
The rising cost of living is a key factor in the global economy’s “pronounced slowdown.”
Fed Chair Jerome Powell has stated that the Fed will take action to prevent persistently high inflation.
Numerous economists believe the Fed will raise interest rates four times this year, increasing the cost of mortgage and other debt repayment and perhaps slowing the economy.
Anxiety about central bank action has caused turmoil in the US stock markets at the start of this year, particularly in technology firms, which are perceived to be more attractive investments in a low-rate environment.
However, markets remained calm following the release of recent inflation data in line with forecasts.
The data came a day after the Organization for Economic Cooperation and Development (OECD) reported that inflation in its 38 member countries reached a 25-year high in November.
Meanwhile, the World Bank warned of a “marked slowdown” in the global economy, blaming inflation and new COVID-19 variants.
In the United Kingdom, recent numbers showed the price at a 10-year high of 5.1%, with the Bank of England expecting it might reach 6% by spring as energy prices increase.
The Office for National Statistics is scheduled to release the UK’s December inflation data next week.
Inflation sting to hurt come November
The White House is grappling with another doomsday inflation report that jeopardizes President Biden’s massive social spending program and Democrats’ midterm political hopes.
According to the Labor Department, consumer prices jumped 7% year over year in December, the fastest increase in over 40 years as the United States economy rebounded from the extraordinary COVID-19 outbreak.
Moody’s Analytics chief economist Mark Zandi termed the report “ugly report.” However, Zandi believes Americans have survived the worst of it and are approaching the end of the worst of it.
On Wednesday, White House officials were keen to point out that inflation climbed slower in December than in the previous two months, indicating that it is beginning to slow.
During a press briefing, White House National Economic Council Director Brian Deese observed a welcome slowing in the rate of price increases in several areas, adding that data are “moving in the right direction.”
At-home food price increases slowed, and gas prices fell, which Biden highlighted in a statement as evidence that his administration is making progress in slowing the rate of price increases.
Jason Furman, who chaired former President Obama’s Council of Economic Advisers, noted from a political standpoint, the fact that gas prices are falling rather than growing is extremely positive; Jason added that when trying to forecast future events, the majority of economists look at changes in gasoline prices.”
While economists expect inflation to drop over the next year gradually, consumers will likely feel the consequences for several months. This might portend difficulty for Democratic incumbents in the upcoming elections, as the party fights to retain its slim congressional control.
Zandi argued that the inflation sting will still be there in November, even if it will be significantly lower, estimating that inflation would be around half of what it is now, or 3.5%, by Election Day.
The White House and Democrats have maintained that approving Biden’s climate and social policy bill will help American families cope with growing costs by cutting their bills.
On Wednesday, Rep. Hakeem Jeffries (D-N.Y.) tweet highlighted how the Build Back Better Act combats inflation by lowering average Americans’ childcare, energy, housing, and healthcare costs and that Republicans reference inflation whereas the House Democrats are taking action.
The plan, however, has been stuck since Sen. Joe Manchin (D-W.Va.) pulled support for the House-passed version last month over inflation concerns. While Wednesday’s report was widely anticipated, it is likely to exacerbate those concerns.