Daily Management Review

January Inflation Rate In US Rise At Fastest Rate Since 1982


January Inflation Rate In US Rise At Fastest Rate Since 1982
Price increases in the United States last month grew faster than expected, pushing the annual inflation to 7.5 per cent, which was the highest rate since 1982.
Food and energy prices contributed to the hikes, which left few spending categories unaffected.
Rising prices are putting a strain on household finances as earnings fail to keep up.
The US central bank is expected to hike interest rates, putting pressure on Washington to solve the issue.
The Bank of England has already raised interest rates twice in the last three months in an attempt to reduce consumer spending by making borrowing more expensive.
In the United States, consumer spending remained solid for much of last year despite fast-rising prices, which economists attribute to a combination of robust demand, government expenditure, supply chain hold-ups, and wage hikes due to labor shortages.
Amazon, Netflix, and Procter & Gamble are just a few of the companies that have announced price increases in recent months, blaming rising costs. They have stated that they expect the majority of households to absorb the increases.
However, despite great economic growth last year, the issue has become increasingly important to voters, undermining President Joe Biden's popularity.
Biden pledged in a statement that his administration would "be all hands on deck to win this fight", acknowledging that "Americans' budgets are being stretched in ways that create real stress at the kitchen table".
Consumer prices rose 0.6 per cent month on month in January, according to the US Labor Department.
The rent index increased by 0.4 per cent, while food costs increased by 1 per cent owing to increases in the cost of bakery and cereal items.
The "fundamental problem," according to University of Michigan economist Betsey Stevenson, is demand exceeding supply.
"So we've got two ways to fix the problem: We can bring down demand ... or we can try to increase supply," she said. "The central bank is going to deal with trying to constrain demand by raising interest rates. But we've got to look at governments to try to do what they can to increase supply."
Biden stated that his government is investing to alleviate supply chain bottlenecks and has advocated for additional initiatives targeted at cutting prices through more competition.
Inflationary pressures may be beginning to subside, according to Thursday's report, which noted that prices for new vehicles - one of the biggest drivers of inflation over the last year - remained steady over the month, while hikes for used cars dropped.
Hotel room rates fell by 3.9 per cent, which could be attributed to the impact of lower travel due to Omicron.
However, given the increases in food and housing costs, financial pressures for most households will remain, according to Andrew Hunter, senior US economist at Capital Economics.
"A rapid cyclical acceleration in inflation is underway and, with labor market conditions exceptionally tight, it is unlikely to abate any time soon," he said.
"While we still expect more favorable base effects and a partial easing of supply shortages to push core inflation lower this year, this suggests it will remain well above the Fed's target for some time."