Inflation in the U.S. is at its 13-years high, according to the latest report from the Bureau of Labor Statistics (BLS). In context, cumulative inflation over the last 12 months totals 5.4%, compared to June of last year, when prices were depressed by low demand due to mobility restrictions imposed to control the pandemic.
The Core Price Index, which excludes more volatile goods such as the cost of food or energy also pointed to an unusually high variation of 4.5 %. The price of food and energy, which accumulated a monthly increase of 0.9 %, has been felt in July’s measurements.
Thousands of retailers and supermarket chains have begun to accumulate larger inventories to shield themselves from the growing inflation that is already affecting suppliers and is beginning to be passed on via prices to consumers.
One factor has been congestion at China’s ports. With the closure of the Port of Yantian, trade between China and the United States has been partially paralyzed and the costs of shipping a container have nearly quintupled and for many importers are prohibitive.
Housing costs are also among the main drivers of rising inflation. Home prices have risen to record highs due to demand stimulated by low interest rates offered by commercial banks and a supply that cannot keep up. It is estimated that the United States currently has a housing shortage of 5.5 million units.
Car prices, both new and used, have had a significant impact on inflation in one year, increasing by 5.3% for new cars and up to 45.2% for used cars. The shortage of microchips in the world has hit the American automobile industry particularly hard and it has had to limit the number of units it will produce this year.
Among the main factors that are driving up prices is the rising cost of transportation. Transportation companies have been affected by the shortage of personnel that has not yet reached the number of positions that existed in February 2020. The transportation and warehousing sector in particular still has 90,000 vacancies to fill.
Yet many companies are having trouble filling their vacancies and millions remain unfilled, while thousands of Americans are still claiming unemployment benefits that are set to be lifted in September, the impact on hiring has caused 23 states to lift unemployment benefits.
Fed Chairman believes that inflation in the U.S. will remain high but just in the coming months
As consumer spending has picked up again with the opening, suppliers have struggled to keep up with rising demand. The Federal Reserve (Fed) argues that the inflation experienced by the U.S. economy is to some extent “desirable” and is a “sign” of robust demand growth, which will also encourage employers to hire more people.
In his hearing with the House Financial Services Committee, the Fed Chairman stated that “this year’s real Gross Domestic Product appears to be on track for its fastest increase in decades.”
From July 2020 to July 2021, U.S. GDP has grown by 6.4%. This growth is due, according to Powell, to the fact that “Demand remains very strong and overall business investment is increasing in a solid pace.”
Regarding the slow U.S. jobs recovery, Powell said that “Job gains should be strong in coming months as public health conditions continue to improve.”
For Powell, inflation will not go away soon and “will remain elevated in the coming months before it moderates.” However, the Fed expects this to be transitory as he clarified that “The FOMC seeks longer-term inflation expectations that are well anchored at 2 %.”