Inflation in the United States breaks another milestone as it soars to a 40-year high and continues to hammer the American public’s faith in their economy.
Per USA Today, the Labor Department reported that consumer prices rose by 7.5% in January. This latest hike marks the sharpest increase in the space of a year since February 1982. The rocketing inflation rates have been blamed on a distinct lack of supplies and workers, robust consumer spending, extremely low-interest rates, rising fuel, and food prices, and huge amounts of federal aid.
The financial forecast for the rest of 2022 continues to look gloomy. Most of the triggers that have seen prices shoot up since last spring remain in place, and inflation is not expected to slow down anytime soon. Wages continue to rise faster than they have done during the last two decades. The workforce at the nation’s busiest ports and warehouses continues to be hit hard by COVID-19. Last month alone, hundreds were unable to work due to sickness. Consequently, products and parts across the board remain in short supply.
The surge in prices has left many Americans struggling to meet basic necessities such as food, gas, rent, and childcare. Soaring inflation has also reinforced the Federal Reserve’s decision to raise interest rates throughout the economy. Fed Chair Jerome Powell has pursued ultra-low interest rate policies since March 2020, when the pandemic wreaked havoc upon the economy. However, he has signaled that the central bank will likely begin hiking its benchmark short-term rate this March.
Per Yahoo Finance, Senior U.S. economist for Capital Economics, Andrew Hunter, explained that the Consumer Price Index (CPI) released by the Bureau of Labor Statistics makes for grim reading. He explained, “With core CPI inflation hitting a new high of 6.0%, there was little to cheer about in the rest of the report. The 0.6% gain in medical care services prices may also have reflected Omicron disruption, and prescription drug prices also saw an unusually large gain.”
Hunter added, “The acceleration in rent of shelter inflation shows no sign of abating, with owners’ equivalent rent up by 0.4% m/m again and rent of primary residence seeing an even bigger 0.5% gain. Alongside the 0.7% jump in food away from home prices, this underlies our view that a rapid cyclical acceleration in inflation is underway and, with labor market conditions exceptionally tight, it is unlikely to abate any time soon.”
As the runaway inflation rates continue to surge, the situation is perceived as a real threat to President Joe Biden and congressional Democrats ahead of this year’s midterm elections.