U.S Inflation Accelerates Near 40-Year High
Record breakers…US headline inflation has risen 0.8% month on month, leaving the annual rate at 6.8%, the highest since March 1982. Core (ex-food and energy prices) increased 0.5% month on month so its annual inflation rate is now 4.9% – the highest since October 1984.
This is exactly in line with market predictions, but there were certainly fears the country could have seen a 7%+ figure today, James Knightley, Chief International Economist at ING Economics said in a note.
U.S inflation pressures continue to intensify and broaden across the economy, according to ING Economics note share with MarketForces Africa today.
“Transitory” is dead and the Federal Reserve will take a more assertively hawkish stance at next week’s Federal Open Market Committee (FOMC) meeting, the note reads.
Big rises in key components
In terms of the usual suspects as the key inflation drivers, housing rise 0.5% month on month with the key rental components gaining 0.4% in a lagged response to surging home prices and the impact on city rents as people returned to the office.
Used car prices then rose 2.5% month on month due to the dearth of new vehicles, which themselves increased 1.1%.
Data shows that hotels and air travel rise 2.9% and 4.7% month on month respectively due to bumper Thanksgiving holiday plans relative to last year.
Food prices rose 0.7% month on month while there was a solid 1.3% jump in clothing. The weakest components were recreation (-0.2%), education (0.0% and medical care (0.2%).
Price pressures broaden and intensify
Further increases are likely in the annual rates, especially core, which will likely get up to 6% year on year and analysts expect to see price pressures continue to broaden out across the country.
The National Federation of Independent Businesses shows the highest proportion of companies since the beginning of the 1980s were raising their prices over the past three months and the highest proportion ever expect to raise prices over the next three months.
Fed forced into action
The concern at the Fed will be that high inflation today can fuel expectations of higher inflation tomorrow and the day after that and so on. This can then feed through into wage demands and in an environment of decent corporate pricing power we see those costs post onto customers.
The Fed will be keen to avoid this (or be seen willing to tolerate it), hence our expectations for a faster taper next week, with the programme concluding in February.
ING Economics Knightley expects them to signal the prospect of two rate hikes in their “dot plot”, up from the one they currently have. #U.S Inflation Accelerates Near 40-Year High
