Letter from the US: Worrying signals about inflation

The consumer price index rose 8.3% last month compared with a year ago, according to the US government’s report. This is down slightly from the 8.5% increase in March – its peak since 1981.

However, the report also contains worrisome data on inflation, such as the price of basic commodities in April doubled compared to March. Prices were further escalated by airfares and booking costs. Hotels and car prices spiked. Apartment rental fees are also continuously increasing.

The report also highlights the challenges for the Federal Reserve and the White House in controlling inflation. Even if prices are better controlled, inflation could remain high until 2023, according to analysis by many economists. This means that many Americans may be under pressure as prices rise faster than wages.

A woman living in Phoenix, Arizona – USA expressed concern about inflation in an interview with Reuters news agency on April 20 Photo: Reuters

Grocery and food prices are still rising, in part because the Russia-Ukraine conflict has put pressure on the overall price level of grains. Food prices in April increased by 1% from the previous month and by nearly 11% over the same period last year. This year-on-year growth rate is the highest since 1980.

The volatility in the world is likely to increase inflation in the coming months. If the European Union decides to ban oil imports from Russia, world oil prices will increase and gasoline prices in the US will also increase. In addition, the closure of China because of the Covid-19 epidemic may threaten the global supply system.

In order to bring inflation back to 2%, the Fed raised interest rates in March and May, there may be 5 more hikes this year. Lending interest rates increase with the expectation that it will reduce the growth rate of the economy (in order to control inflation).

The Fed is also trying to influence the economy enough to reduce inflation without causing a recession, knowing that this will not be easy. This is possible, but unlikely, with the current high inflation rates, economists say.

One of the things the Fed is worried about is that people may begin to get used to high levels of inflation, making it more difficult to control prices. If people get used to rising prices, they can ask for a raise. Higher labor costs can force businesses to raise the prices of their products, resulting in a spike in inflation.