Business

BIDEN: INFLATION BURST COULD LAST QUARTERS

by The Chicago Times Staff

July 14, 2021

WASHINGTON — Officials at the White House believe that a recent spike in inflation may last for a while, but that it will eventually subside as widespread bottlenecks that have severely disrupted the supply chain begin to dissipate.

Prices for goods and services increased by the most in 13 years fueling fears that a rapidly recovering economy could lead to out-of-control growth.  Consumer prices rose 0.9 percent in May and 5.4 percent over the previous year, according to the Labor Department’s monthly report.

Core inflation, which excludes volatile oil and gas prices, increased by 4.5 percent in the past year, the highest increase since November 1991.

Consumer prices have risen in tandem with the economy’s faster-than-expected recovery from the pandemic, as Americans, flush with stimulus funds, eagerly begin spending again on everything from vacations to new clothing.

While the Biden administration believes that the price hike will last quarters, not months, until the supply chain bottleneck is resolved, it believes that inflation has already peaked in some sectors, such as used cars, which saw a 10.5 percent increase in June, the largest monthly increase since records began.

The rise in prices for goods and services has been mostly downplayed by Federal Reserve Chairman Jerome Powell, who blames it on supply shortages and a wave of pent-up demand among consumers as more Americans are vaccinated and begin their post-pandemic lives.

Powell has maintained that inflation is likely to be “higher and more persistent than we expect,” even though he has said it could be “higher and more persistent than we expect.”

Investors are concerned that rising inflation will force the Fed to hit the brakes sooner than expected and begin withdrawing its massive monetary support for the economy.

While inflation is rising, job growth has slowed to pre-crisis levels, leaving 9.5 million Americans unemployed.

Fed officials unanimously agreed to keep interest rates near zero, where they have been since March 2020, and to continue purchasing $120 billion in bonds each month during their two-day policy-setting meeting in June.

Even though policymakers raised headline inflation expectations to 3.4 percent for 2021 – a full point higher than the March forecast – the Fed gave no indication in June that it was considering scaling back its aggressive bond-buying program. 

Categories: Business

Tagged as:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s