Inflation soars to 2008 levels

inflation soars

Yesterday, Wednesday, the US Consumer Price Index data was released. The figure reached 4.6%, going up from 2.6% a year earlier, 2020. This represents the largest one-year increase since 2008 and considering energy, meat, and food prices rises, the largest increase since 1982.

The rise in inflation can be attributed to a lot of factors, including less coronavirus cases thanks to vaccination campaigns, the easing of lockdown measures, and consumers’ hunger to shop and socialize after a difficult period.

On the business side, the lack of labor (perhaps because many workers prefer to stay at home as they fear the virus or they enjoy state benefits) has forced employers to increase overtime and wages to find workers. Also, after months under lockdown and low production, many sectors have been forced to raise prices. According to a survey by the National Federation of Independent Business in the US, around 36% of small businesses raised their prices in April, triggering the largest increase since 1981.

Prices in the food sector were up 2.4% compared to April 2020, the increase in catering and eating out was up 3.8%, car and truck rentals were up 82%, airfares were up 9.6%, and used car purchases were up 10%.

Although gasoline prices fell by 1.4% in March, the figure has shot up 50% compared to April 2020, with a barrel of WTI trading at $66 a barrel compared to around $20 a barrel last year. Cotton, timber, copper, and iron ore prices are also on the rise. The dollar has weakened, and major stock indices are in the red.

The Fed has signaled that it expects this rally to be temporary and is cautious about talking before seeing more data and changing its monetary policy. It will keep the current rates until average inflation remains at 2% and full employment recovery has been reached (it could be a long way to go if the last NFP figure is anything to go by).

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