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Inflation in the USA jumped 7% last year, which is the highest level since 1982.

WASHINGTON (AP), -- The pace of inflation rose at the fastest pace in almost 40 years last month. This is a 7% increase from the previous year, which is driving up household expenses and reducing wage gains. President Joe Biden and Federal Reserve are under pressure to tackle what has become America's greatest threat.

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Inflation in the USA jumped 7% last year, which is the highest level since 1982.

As a result of the rapid recovery from the recession, prices have risen dramatically for furniture, cars, and gas. This was due to large infusions of government assistance and emergency intervention by Fed which cut interest rates. The shortage of raw materials and workers has strained supply chains as Americans increased their spending.

Ben Ayers (Senior economist at Nationwide) said that "inflation ended 2021 very warm." According to Ayers and other economists, prices will cool as supply chain snags ease but inflation will continue to rise throughout 2022.

Wednesday's report by the Labor Department stated that December's measure of inflation, which excludes volatile food prices and gas prices, jumped 5.5%. This is the fastest increase in inflation since 1991. The overall inflation rate rose 0.5% from November to 0.8% in the previous month.

Nicole Pomije is a Minnesota bakery owner who stated that she has increased the prices of her cookies due to rising butter and other ingredient costs.

The basic version of her cookies cost 99 cents, while the premium white chocolate versions were $1.50 per piece. Pomije stated that she will raise the price of her basic cookies to a premium price.

She said, "We must make money." We are a company. We don't want our customers to go. However, I believe we could."

Rising prices have erased the benefits of healthy pay increases many Americans received, making it more difficult for lower-income households to cover basic expenses. According to polls, inflation is now a major public concern. This highlights the threat it presents for President Biden as well as congressional Democrats.

Pandemic-driven mismatches in demand and supply are still driving a large portion of inflation. Because of shortages in semiconductors, used car prices have increased by more than 37% in the last year. The December new car price jump was 1%, and the year-to-date increase in prices has been 11.8%.

Clothing costs increased 1.7% in December, the second consecutive month of dramatic increases. They are also up 5.8% compared to a year ago.

Last month saw some relief. Although gas prices fell 0.5% in December they remain 50% higher than last year.

Economists predict that inflation will moderate once the omicron waves recede and Americans shift more of its spending to services like travel, dining out, and movie-going. This would decrease the demand for goods as well as help untangle supply chains that are showing signs of untangling.

Prices for groceries, rent, and restaurant meals are rising at the moment. These gains are due to strong consumer demand, which is a result of a strong job market as well as rising wages. Last month, the unemployment rate was 3.9%.

Recently, U.S. grocery shops have seen increased prices and shortages in recent weeks. Supply-chain and labor problems have been exacerbated by severe weather and the omicron variant.

Many restaurants are passing higher food and labor costs onto customers. Darden Restaurants, which owns Olive Garden, LongHorn Steakhouse, and other chains, stated that it raised prices by 2 percentage points at the end last year, and plans to increase them by 4 percent in the next six-months.

Recently, Darden CEO Gene Lee stated to investors that this is the "toughest inflationary environment" he's seen in many years.

Jerome Powell, Chairman of the Federal Reserve, told Congress Tuesday that the Federal Reserve will accelerate its interest rate increases it has planned to start this year if necessary to combat high inflation. Officials at the Fed have predicted that they will increase their benchmark short-term interest rate, currently near zero, by three times this year.

These rate hikes would likely lead to higher borrowing costs for both home and auto purchases, as well as business loans. This could potentially slow down the economy. Also, the Fed will stop buying monthly bonds to reduce longer-term interest rates and encourage borrowing and spending.

Senators and economists have raised questions about the Fed's pivot, including whether it has been slow to end its ultralow-interest rate policies in response to accelerating inflation.

On Tuesday, Powell testified before Congress that the Fed had mistakenly believed supply chain bottlenecks that contributed to the rise in the price of goods would not last as long. He stated that prices would fall once supply chains are unencumbered.

Powell admitted that supply issues have not subsided. Powell noted that there are still many cargo ships awaiting unloading at the ports of Long Beach and Los Angeles, which are the largest ports in the country.

The president said that his administration's investments into ports, roads and bridges would aid in easing the tight supply chains, as the Biden administration is facing discontent from the rising inflation rate.

Ryan Sweet, an economist at Moody's Analytics, stated that "supply chain issues pushed up inflation last year" and that it won't repeat this year.

Economists do not expect inflation to drop to the Fed's target of 2%.

Senior economist at TD Bank Leslie Preston predicts that prices will continue to rise at a 3% rate at the end this year.

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