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The Fed’s favorite price index has risen 4%. What’s coming next?

Inflation indicators recommended by the Federal Reserve Board rose 4% year-on-year in June as economic recovery and strong demand for goods and services helped push prices up.

Increased consumer spending Inflation index It was the fastest since 2008, but it was in line with economists’ expectations. That rapid pace is not expected to continue — and how and how quickly it declines is now an economic issue.

Inflation is surprisingly fast this year. Economists knew that prices would rise significantly as many common purchase costs were measured against weak numbers since 2020, when they fell. However, the jumps are more intense than most people expected.

This was partly due to supply bottlenecks throughout the reopening US economy. The shortage of computer ships has pushed up the price of electronics, slowed the production of cars, and scrambled people to look for cars, causing the price of used cars to skyrocket. Employers are struggling to hire workers fast enough to meet returning demand, and wages and prices at restaurants and some other service providers are starting to rise.

Spending remained strong, showing a Friday release, up 1% in June compared to last month. That’s more than the 0.7% pop economists expected in a Bloomberg survey, and even after adjusting for inflation, it was still up 0.5%.

Even if consumer demand is holding up, June inflation data could be a high point in the price pressure story. Last year’s low numbers have become less important, and many economists expect the rapid pace of price increases to begin to slow in the coming months. The soaring used car prices were big enough to push up the overall price, Showed signs of mitigation In July.

But how quickly Inflation recedes There is increasing uncertainty about the Fed’s 2% target, which it seeks to achieve on average over the long term. It’s hard to know how quickly the supply chain growls that have complicated price conditions so far this year will disappear, or if new ones will emerge. Increasing cases of coronavirus worldwide and the emergence of new variants such as Delta could lead to continued disruption of global production and shipping routes just in time for the new school year and holiday shopping season. there is.

Constance L. Hunter, Chief Economist at Accounting Firm KPMG, said: “This prolongs many of the pandemic factors that were causing inflation.”

Memphis chef and restaurant owner Michael Patrick had to raise wages for cooks and dishwashers to seduce him back to Michael Patrick’s fine Southern Southern restaurant, Rizzoz. Supply chain issues made it difficult to obtain chicken and other key ingredients, which also increased his food costs. So he responded by raising the price of the menu twice in the last few months. So far, his customers haven’t complained.

“People aren’t even blinking,” he said. No one said, “I can’t believe I raised the price of meatloaf by $ 2.”

However, Patrick is concerned about the impact of the Delta variant. He said he was confident he could sustain sales as both he and his customers learned to navigate the pandemic life. However, if the resurgence of the virus leads to increased outages in meat processing plants and other food producers, it can pose even greater challenges.

“Canola oil, beef, chicken-everything is up because we didn’t have the supplies,” he said. “Hopefully, after all, these variants won’t close the door again for many of these companies.”

It is important for workers how quickly today’s strong price increases will decline. Higher prices are robbing workers of their salaries. After-tax profits in June fell 0.5% to account for the effects of inflation. Inflation has more than offset a small increase in after-tax income over the past year.

Data released on Friday show that core inflation, which removes volatile foods and fuels and gives a clearer picture of price trends, rose 3.5% year-on-year in June, the highest annual measurement in 30 years. Shows what you have shown.

The headline index rose 0.5% from May to June, slightly below the 0.6% economist expected in the Bloomberg survey.

Fresh inflation data released by the Commerce Department is released later than other data Ministry of Labor Inflation Report.. However, they are being watched carefully as the Fed uses the consumer spending index (which tracks people’s consumption but not paying directly, such as medical care) to determine progress towards inflation targeting. ..

“The US economy has surprised us all,” said James Bullard, president of the Federal Reserve Bank of St. Louis, in a speech on Friday. “There is much more inflation than we have ever experienced. Of course, we expect it to ease, but I don’t think it will be fully reduced in 2022.”

The Federal Reserve Board is prepared to consider inflation, which is expected to be temporary, but it is worried that the sharp rise in prices will turn into a more severe situation. Authorities are seeing trends like rising wages, especially because of the sense of whether inflation will continue.

Wages and salaries rose 0.9% in the second quarter, slightly slower than in the first three months of the year, according to another data released by the Ministry of Labor on Friday. However, wages are rising rapidly in some industries that are resuming with a decline in pandemics. Wages in the leisure and hospitality sector rose 2.8% in the second quarter and rose 6.1% over the past year.

If the salary increase turns into a cycle — a cycle in which workers regularly demand more money to cover rising costs and employers give salary increases but pass on expenses — it will lead to sustained inflation in the future. There is a possibility of connecting. The Federal Reserve Board generally doesn’t think it’s happening now.

“There is a form of wage inflation that can lead to higher prices, and we don’t see it now,” Central Bank Chair Jerome H. Powell said in the news. Wednesday meeting..

Powell and many of his colleagues argued that price pressures should weaken as the economy returns to normal — Mr. Bullard is one of the Fed officials who are more concerned about inflation. Many central bankers have pointed out that even if inflation has heated up in recent months, consumer expectations for future inflation have historically remained at normal levels.

White House economic officials have emphasized a similar point, they argue that high inflation is not a reason to regain their policy ambitions, but they say it does not increase price pressure.The Biden administration is trying to shepherd a trillion dollar bipartisan infrastructure Bill through parliament. This includes $ 550 billion in new spending to make extensive investments in national transportation and public works.

But Republicans see rising inflation as a bitter way to criticize the Biden administration, which mishandles the resumption of the economy and allows prices to run wild, they say.

“There is no doubt that severe inflation is occurring right now,” Pennsylvania Republican Senator Patrick J. Adams said in an interview with CNN last week. “I have a question about how long it will last, and I’m worried that this might be at high risk of being with us for a while.”

Even some central bankers are becoming more vigilant as inflation rises.

“The risk of inflation is not to recede as quickly as we expected, or to be shocked by other types of higher inflation in 2022,” Bullard said on Friday. Insisted that it should be done. It will end its “tapering” early next year and begin slowing down large-scale bond buying campaigns so that it is ready to raise interest rates if necessary.

“That doesn’t mean we have to take off sooner,” he said. “But we want choices.”

The Fed’s favorite price index has risen 4%. What’s coming next?

Source link The Fed’s favorite price index has risen 4%. What’s coming next?

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