Inflation monitoring: US consumer prices show strongest growth since 2008 | Business and economic news

Flames of inflation fears received a new dose of fuel on Tuesday after U.S. government data showed consumer prices rose again in June.

Flames of inflation fears received a new dose of fuel on Tuesday after U.S. government data showed consumer prices rose again in June.

Consumer prices rose 0.9 percent last month after rising May 0.6, the U.S. Department of Labor said. This is the strongest change in a month since June 2008.

Over the past 12 months, the consumer price index for all items has increased by 5.4 percent in June – the largest annual increase since August 2008. The index for all items is in trend every month since January when the 12-month change was 1.4 percent.

A little inflation is a good thing for an economy because it encourages consumers to buy goods and services now, rather than sitting on their wallets waiting for prices to fall. But too much inflation is decidedly bad, especially if it triggers a vicious upward price spiral that encourages monetary policy makers to raise interest rates and potentially derail the nation’s economic recovery from COVID-19.

There are two fields of thought about inflation now. It is believed that price spikes are a temporary consequence of generous government stimulus benefits, and provide bottlenecks for raw materials and labor derived from companies preparing operations since pandemic restrictions are restored. and consumers trigger pent-up demand.

Federal Reserve chief Jerome Powell falls into that camp. He and his fellow U.S. monetary policy officials have said they are willing to tolerate inflation that exceeds the Fed’s target rate of 2 percent for some time, if that’s what it takes to heal the U.S. stock market. U.S. work from the destruction of COVID-19.

But other economists and data monitors are concerned that inflation is not so temporary and that the Fed may act too late to tame it without slowing the brakes on growth.

There is also a fierce debate among economists about the state of the nation’s labor market. In June, the nation’s unemployment rate was 5.9 percent – well above its pre-pandemic level of 3.5 percent. And there were 9.5 million unemployed workers last month.

But in May, there were 9.2 million jobs in the United States. And in a sign of how confident some Americans are about their job prospects, some 3.6 million of them left their jobs in May.

Some blame the $ 300 a week federal charge on state unemployment benefits for acting as a disincentive for the unemployed to hit the floor in search of work. Others cite the fear of COVID-19, the bottlenecks for certain types of work, and the challenges of caring for children to prevent the unemployed from taking jobs.

To invite job candidates to take open positions, some companies have increased salaries or offered signing bonuses. Some economists are now worried that rising wages could trigger a wage spiral. But others point out that wages for low-income Americans were falling behind the pandemic, and that they are simply getting a long-term increase.

Meanwhile, as inflation rises, it is low-income families who feel the most pain because rising prices – particularly for essential purchases such as food and fuel that cannot be reimbursed – eat up a larger share of their income.

Food prices rose 0.8 percent in June after rising 0.4 percent in May. Energy prices rose 1.5 percent last month above May when they were flat.

Strip out food and energy, and the “core” consumer price index rose 0.9 percent in June after rising 0.7 percent in May. Many of the same categories of consumer goods have continued to see rising prices including used cars and trucks, new vehicles, air fares and clothing.

“While upward pressure on prices from commodity shortages and reopening should eventually fade, we expect a sustained acceleration in wage growth to ensure that core inflation returns only gradually in the coming quarters,” the economists said. of Capital Economics in a note to clients on Tuesday. “From an average of just over 3% this year, we expect core CPI inflation to be 2.8% next year, much higher than Fed officials seem to anticipate.”

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