Inflation is rising sharply in the US. High inflation is simply the availability of too much money for fewer goods and services. Central banks increase interest rates when inflation heads up in order to reduce the money push in the system. While the reduced interest rate is a measure of economic stimulus, an increase is exactly the opposite. On the other hand, Americans are looking for work, but there is high unemployment. Let’s see inflation rising in US 2021.
The Federal Reserve projected to hike the interest rates in 2023 to tighten the monetary policy for controlled inflation. Earlier it was projected for as late as 2025. However, this announcement of likely increased interest rates will fetch funds to the US from emerging markets.
Current US Inflation Rates 2021
As per the data from the US Labor Department published on Aug 11, 2021, the inflation rate for the US is recorded at 5.4% for 12 months till July 2021. The next inflation update over the 12 months till Aug 2021 is scheduled to be released on Sep 14.
Inflation rising in US 2021 – Reasons for Consumer to Think Ahead
At the end of June, the Federal Reserve Chair Jerome Powell acknowledged that inflation has increased in recent months due to base effects, increased oil prices, supply chain issues, short supply, and consumers’ purchasing power. Once these effects fade, inflation is expected to be in control again.
The Federal Reserve, whose job it is to keep price growth stable, is about to begin descending back their easy money policies soon, with some pushing to end their asset-purchase program as the inflation is spreading beyond the sectors at the center of the economy’s reopening. Several have supported this as it would enable them to raise interest rates soon.
- Consumer prices surged 0.9% in June.
- CPI stimulates 5.4% year-on-year
- Core CPI increases 0.9%; soars 4.5% year-on-year
The market analysts wonder just how transitory the high inflation in the United States is and how average citizens will get affected by it.
CPI July 2021 and Increasing Inflation in the US
The CPI or Consumer Price Index increased 4.2%, whereas analysts were expecting a climb 0.5% of, but there is a 3.6% spike. June’s CPI figures are surprising as well as a trouble for economists because such a rise is too high for a developed economy.
- The CPI for All Urban Consumers increased 0.5% in July after increasing 0.9% in June.
- As per the Bureau of Labor Statistics, the all items index increased 5.4% over the last one year.
- The indexes for food, energy, shelter, and vehicles all rose in July.
- The food index was 0.7% in July. The energy index was 1.6% in July, and the gasoline index rose 2.4%.
- There has been an increase in indexes for recreation, medical care, and personal care in July.
- The motor vehicle insurance index is lowered.
- Airline fares have declined slightly in July. June 2021 airline fares rose 25% than the previous year, but they remain lower than the pre-pandemic period.
What U.S Consumers Need to Watch Out
Consumers are required to allocate their budget cautiously over the next few months. Mysterious price movement is an undeniable side effect of closing down the economy to suppress the pandemic. However, they are likely to be momentary. Low-interest rates and bond purchases are the ‘easy money’ encouraging economic activity.
Consumers are paying more for food, shelter, energy, and apparel since last month. It is somehow sharpened criticism of the Fed’s accommodative monetary and fiscal policy. Since the pandemic entered the US, approximately $6 trillion in government relief has fueled demand, and strained the supply chain.
In June, most employers called in more workers, still many millions remain unemployed. With the main focus on employment, the Federal Reserve will remain accommodative to ensure full employment. Fed Chair Jerome Powell has stated that the focus is on increasing the employment level, and the inflation is rising temporarily, unable to divert them. They expect lower inflation once more personnel are back at work.
July 2021 Press Conference
The Fed decided not to increase interest rates nor adjust the pace of purchasing government bonds. As per Powell, the country’s economy is still a good deal with the mandates of stable prices. But it is something that’s on their radar.
The Fed won’t consider cutting mortgage-backed securities purchases before its overall process of tightening the policy starts. It has been a curious question to know about such assets when home prices have mounted. Powell stated that these purchases had not influenced the housing market significantly.
Last December, the Fed continued the prevailing pace of bond purchases until officials’ conclusion intended to achieve 2% average inflation and a strong employment index. The world’s eyes are at its next meeting addressing ‘Inflation rising in US 2021’ to be held on Sept. 21-22 that may bring strong hiring reports and tapered interest rates.
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