Sunday, December 04, 2022

Inflation likely picked up in October, dashing Washington’s hopes of a quick slowdown.

Inflation likely picked up in October, dashing Washington's hopes of a quick slowdown.

White House officials have picked up a key topic of conversation as a bout of high inflation hits consumers and gives Republicans ammunition to oppose President Biden’s policies: price increases may be faster than usual, but at least they are slowing due to skyrocketing summer numbers. …

The data, which will be released on Wednesday, is likely to fix this leak.

Consumer price inflation likely rose from September to 0.6 percent last month, as expected in a Labor Department report, faster than the 0.4 percent rise in the previous month and the fastest pace since June. Even so-called base price increases that exclude foods such as food and fuel are expected to accelerate.

That big October rise would mean prices as a whole have risen 5.9 percent over the past 12 months, and the underlying index has risen 4.3 percent, according to an average estimate from a Bloomberg survey of economists.

This rate of inflation will be much higher than the 2 percent annual growth rate of the Federal Reserve, which is primarily responsible for maintaining price stability, on average, over time. While the Fed is targeting itself using a separate measure of inflation, the Personal Consumer Spending Index, it has also skyrocketed this year. CPI reports are published faster and help to fit into the Fed’s preferred indicator, which is why they are closely watched by economists and Wall Street investors.

Administration officials and Fed policymakers have stressed for months that inflation, while high, is likely to disappear. But they have had to rethink how quickly this can happen: supply chains are still severely disrupted, and demand for goods is held, which drives prices up. As wages begin to rise in many sectors amid labor shortages, there is reason to expect that some employers may charge more from their clients to meet rising labor costs.

“It is now clear that this process will take longer than originally expected, and inflation is likely to get worse before it gets better,” Goldman Sachs economists wrote in a research paper this week.

The factors that likely contributed to the rise in inflation in October varied: a shortage of used and new cars drove prices up soaring, supply chain problems led to higher prices for furniture, labor shortages drove up prices in services, and rents rose after a weak 2020. Headline data, food and fuel prices skyrocketed.

It is difficult to predict when these trends may soften. Many of them involve reopening businesses after state and local lockdowns designed to contain the coronavirus, and the economy has never been subjected to such a massive shutdown and restart before.

But policymakers are increasingly wary that price increases that are too fast to calm down may continue. While they were willing to ignore the surge in temporary inflation, long-term gains would be a bigger concern, potentially pushing the Fed to raise interest rates to cool demand and contain price pressures.

There are several reasons to believe that today’s price increases will disappear. Households sit on the huge savings they accumulated during the pandemic, but in theory they should be spending it now that government support programs such as expanded unemployment insurance have completely or almost completely ceased to operate.

If demand declines, it could open the door for a return to normal as supply chains catch up. If suppliers have reacted at this point by increasing their production capacity, some prices may even fall.

But the timing and extent of this return to balance is a wild card. Meanwhile, Republicans are pointing the finger at Biden and Democrats, saying they are to blame for the rise in prices because they handed checks to households and adopted different policies related to the pandemic. They called this moment “bidenflation.”

The White House tried to emphasize that the rise in prices comes at a time when the country is experiencing a rapid economic recovery after a disaster that happens once a century. And Mr Biden said his new policies, including the infrastructure bill passed by Congress last week, will expand opportunities over time and help lower inflation.

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