US Inflation At 40-year High, Raising Jitters

Inflation in the United States soared over the past year at its highest rate in four decades, hammering America’s consumers, wiping out pay raises and reinforcing the US Federal Reserve’s decision to begin raising borrowing rates across the economy.

The US Labour Department said on Thursday that consumer prices jumped 7.5 percent last month compared with 12 months earlier, the steepest year-over-year increase since February 1982.

Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year.

When measured from December to January, inflation was 0.6 percent, the same as the previous month and more than economists had expected. Prices had risen 0.7 percent from October to November and 0.9 percent from September to October.

There are few signs that inflation will slow significantly anytime soon. Most of the factors that have forced up prices since last spring remain in place: Wages are rising at the fastest pace in at least 20 years. Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the nation’s busiest, out sick last month. Many products and parts remain in short supply as a result.

The steady surge in prices has left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and as a serious threat to President Joe Biden and congressional Democrats as midterm elections loom later this year.

The Fed and its chair, Jerome Powell, have pivoted sharply away from the ultra-low-interest rate policies that the Fed pursued since the pandemic devastated the economy in March 2020.

Powell signalled two weeks ago that the central bank would likely raise its benchmark short-term rate multiple times this year, with the first hike almost surely coming in March. Investors have priced in at least five rate increases for 2022.

Many large corporations, in conference calls with investors, have said they expect supply shortages to persist until at least the second half of this year. Companies from Chipotle to Levi’s have also warned that they will likely raise prices again this year, after having already done so in 2021.

Many small businesses, which typically have lower profit margins than larger companies and have struggled to match their sizable pay raises, are also raising prices. The National Federation for Independent Business, a trade group, said it found in a monthly survey that 61 percent of small companies raised their prices in January, the largest proportion since 1974 and up from just 15 percent before the pandemic.

“More small business owners started the new year raising prices in an attempt to pass on higher inventory, supplies and labor costs,” said Bill Dunkelberg, the NFIB’s chief economist. “In addition to inflation issues, owners are also raising compensation at record-high rates to attract qualified employees to their open positions.” (AP)