The US Department of Labor on December 10 published the inflation data expected by the financial community in November. The consumer price index in America rose 0.8% against October and 6.8% year-on-year. The highest since 1982, it reminded contemporaries of the era of Paul Volcker, the late former Fed chairman who beat high inflation in the wake of the 1970s Middle East oil crisis.
Inflation statistics are published monthly. Earlier, a detailed study of the numbers made it possible to assert that the factors that form the growth of the consumer price index are temporary in nature, since they are due to the effect of the pandemic. This, for example, the rise in prices for air tickets or used cars, as well as the cost of gasoline at gas stations. However, the situation changed in October: the report for this month showed that a wide range of goods and services are becoming more expensive. This includes a significant increase in housing payments, which in the United States occupies almost a third of the consumer basket.
Following the October report, Fed Chairman Jerome Powell said the US Central Bank no longer believes high inflation is temporary. Powell also announced consideration at a meeting of the Open Market Committee (FOMC) in December to discuss a more accelerated pace of winding down the asset purchase program, which was scheduled to be completed in mid-2022 before the October inflation report.
The November report is similar to the previous release. In the last month of autumn, most categories rose in price. Gasoline, housing payments, food and cars were the most significant contributors to the rise in the CPI relative to October.
Thus, food prices in November rose by more than 6% year-on-year. Beef added almost 14% in price, pork – 17%, chicken and fish – about 8%. At the same time, the cost of gasoline jumped by 58% over the year, but in November alone it increased by 6%. Used cars have risen in price by 31%. Clothing and household appliances added 5% each. Furniture and bedding have become more expensive by almost 12%.
Payment for housing, which, as mentioned above, is a very important structural component of the consumer price index, increased in November by October by 0.5%. On a year-on-year basis, there was an increase of 3.8%, the highest since 2007.
As you know, the Fed’s preferred inflation indicator is not the consumer price index (CPI), but the personal consumer spending price index (PCE). The November CPI in terms of inflation PCE suggests an increase of 5.4%. This means that inflation in the last quarter of 2021 will be significantly higher than the FOMC median estimate, which was 4.2% based on September forecasts. The new forecasts by Fed officials, also known as dot plots, will be released on December 15 and are likely to be revised significantly.
The September dot plots assumed that in 2021 the federal funds rate would only be raised once until December 2022. Further, the process of increasing rates will proceed smoothly: the key one can be increased to 1% in 2023 and to 1.8% in 2024, the document says. The dot plots updated in December may already reflect two rate hikes in 2022 and three each in 2023 and 2024.
But the fact remains: inflation is already a concern, especially in the housing pay category. The problem is that, apart from the collapse of the economy, there is little that the US financial authorities can do to prevent rent increases. In any case, given the risks of the coronavirus, and the fact that a Fed rate hike will not solve supply chain bottlenecks anyway, I believe the US Central Bank will try its best to remain flexible.
Author – Head of Global Research at Otkritie Investments
The editorial position may not coincide with the opinion of the author
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