Friday’s inflation report came as a surprise to the White House, the Federal Reserve and investors.
While many economists and some government officials expected prices to show some signs of cooling, they got the opposite: re-accelerating price growth, making the Fed more likely to have to slam on the economy’s brakes, it seems. to slow down the fastest inflation rate in 40 years.
As one left-wing think tank said, the report was “pretty ugly.”
The news dispelled the notion that inflation may have already peaked and added fuel to the Biden administration’s greatest vulnerability in domestic politics, both politically and economically, as the midterm elections approach.
It also increased the chances that the Fed, which has already begun to raise borrowing costs to reduce demand, will have to make a series of larger interest rate hikes over the next few months.
Data from the consumer price index showed growing evidence that the war in Ukraine continues to raise prices for food, gasoline, electricity and other basic goods. Inflation in services, such as housing, remains high. Inflation in consumer goods – which administration officials had hoped to slow as sectors such as the automotive industry developed supply chain problems – rose again after a spring slowdown. Expenditure on basic products such as eggs, meat and bread rose, with the index measuring the price of food at home registering its biggest annual increase since 1979.
Understand inflation and how it affects you
“In the 1970s, he called and wanted his inflation back. There is no room for sugar coverage, “analysts at TD Securities wrote in a report shortly after the publication. The report should be of great concern to the Fed.
After a senior White House official told reporters on Thursday that the report would show indications of an economy that is beginning to shift to what the president said was his goal of slower, more stable economic growth with more -Low inflation, administration officials and their allies did little on Friday to dispel the idea that the numbers are challenging and disappointing.
The White House Council of Economic Advisers wrote in a series of Twitter posts that “price increases are broad-based”, while noting that core inflation – which excludes volatile goods such as energy and food – has fallen slightly from its average. at the beginning of the year.
The external allies were more outspoken. The Liberal Institute for Economic Policy in Washington wrote on Twitter that the report was “quite ugly – and shows that workers and their families are in pain.”
Republicans have blamed the president, as he has for more than a year, for the increases, saying his 2021 economic bailout bill is virtually overheating the economy. “The truth is, inflation hasn’t just crept into Biden’s White House,” said Jason Smith of Missouri, a leading Republican on the Budget Committee. “The warning signs were there all the time.”
Mr Biden and his team are trying to make a delicate turn on the issue of inflation, calling it their top economic priority and increasingly expressing sympathy for households struggling to cope with rising prices. They have tried to calm markets by addressing the Fed’s message of confidence in raising interest rates by raising interest rates, while trying to project a sense of urgency with actions that officials acknowledge will have little effect in at best, on broad prices – as a announcement this week that the administration is suspending tariffs on some imported solar panels.
Frequently asked questions about inflation
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What is inflation? Inflation is a loss of purchasing power over time, which means that your dollar will not go as far tomorrow as it does today. It is usually expressed as an annual change in the prices of everyday goods and services such as food, furniture, clothing, transport and toys.
What causes inflation? This may be a result of growing consumer demand. But inflation can also rise and fall on the basis of developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? Depends on the circumstances. Rapid price increases lead to problems, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation usually creates problems for stocks. Financial assets generally performed poorly during the inflation boom, while tangible assets such as houses maintained their value better.
Officials also continue to look for additional ways for Mr Biden to lower the price of petrol, which is largely dictated by global market forces and is very difficult for presidents to influence in the short term.
At the same time, the administration tried to convince Americans that Mr. Biden had a plan to pull the economy out of its current state, which disappointed consumers and weighed heavily on his poll numbers.
The data refused to cooperate, and price spikes continue to hit American families. A statistics from the Ministry of Labor on Friday highlighted the damage: it shows that the average hourly income adjusted for inflation fell by 3 percent in May compared to a year ago.
In practice, this means that the typical American worker has lost purchasing power in the last year.
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