Prices continue to climb: Inflation hits its highest level in 13 years

Prices continue to climb in the United States, and in June experienced their largest increase in 13 years, heightening concerns about the sustainability of this inflation as American consumers see their purchasing power eroded.

• Read also: “Fastest” growth in 25 years expected in the United States

All eyes are, more than ever, on the American Central Bank (Fed): will its officials continue to ensure that this price increase is only temporary?

Inflation accelerated in June, reaching + 5.4% compared to June 2020, and + 0.9% compared to last month, according to the CPI index published on Tuesday by the department of Job.

The recovery in demand in the United States and global supply difficulties have driven prices up for several months, but this new jump is stronger than expected.

Excluding volatile food and energy prices, so-called core inflation has seen its biggest increase in 30 years (4.5%).

As in May, the prices of gasoline and used cars increased particularly over one year, by 45.1% and 45.2% respectively.

Demand remains very strong for used cars, because car rental companies are rebuilding their fleets after the pandemic, but also because of the shortage of semiconductors which is slowing the production of new cars.

“We believe this will be the peak of the annual inflation rate as the high comparison effects will subside over the next few months,” commented economists Kathy Bostjancic and Gregory Daco of Oxford Economics.

The increase is, in fact, all the stronger since a year ago, prices were barely starting to recover after plunging due to the first containment measures, creating a very unfavorable comparison effect.

But beware, they warn, we will have to continue to put our hand in the portfolio, because the economic recovery will maintain high demand, and bottlenecks will persist in the supply chain.

They forecast inflation above 2% until 2022.

Many economists believe that this price increase, although very strong, will last only a few months, and is not herald of an inflationary spiral, as was the case in the 1970s and 1980s.

“For Fed officials, the message on (the) transitory aspect could become more difficult to deliver if the rise in prices continues to surprise, even if they reflect factors that may be temporary”, underlines Rubeela Farooqi , chief economist for HFE.

The chairman of the powerful US Federal Reserve, Jerome Powell, is expected to be questioned on the subject by US parliamentarians on Wednesday and Thursday during his semi-annual hearings before the House of Representatives and the Senate.

Fed officials admitted at their last monetary meeting in mid-June to have been surprised by the scale of the price hike.

However, they have been hammering, for months, that there is no need to worry. They are also worried about jeopardizing the sustainability of the economic recovery by tightening their monetary policy too soon.

They also assure that as a last resort, they have the tools to prevent inflation from continuing to soar.

They thus want to see the return of full employment, and an inflation which is higher than their objective of 2% for “a while”, before stabilizing there.

“Clearly we have not currently made” the expected progress, underlined Monday the president of the Fed of New York, John Williams.

Another index measuring inflation, the PCE index, followed by the Fed, accelerated in May to 3.9%, but slowed to + 0.4% over the month.

The unemployment rate was 5.9% in June, still much higher than the 3.5% before the crisis. And, despite the 850,000 jobs created during the month, nearly 7 million are still missing.


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