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Faster inflation in the United States erases years of below-target goals: Kemp

Rapid rise in consumer prices as the US economy reopens after the pandemic wiped out years of below target inflation, intensifying questions about when the central bank will start cutting monetary stimulus.

Consumer prices in the United States increased at a compound annual rate of 3.00% per year in the two years through June 2021, the fastest two-year increase since October 2008, according to data from the Bureau of Labor Statistics.

Consumer staples prices excluding volatile food and energy have increased at a compound annual rate of 2.82% per year, the fastest increase in nearly a quarter of a century.

Comparisons with 2019 help avoid the distortions caused by the first wave of the epidemic and widespread business closures in 2020, and emphasize that faster inflation is not due to base effects alone.

In August 2020, the Federal Reserve has committed to an average inflation rate of 2% over time, as part of its review of longer-term goals and monetary strategy.

At the time, senior policymakers noted that inflation had been below target “persistently” in recent years, so it should be allowed to slightly exceed the target for a while to bring it back to the average. at 2%.

But they gave no indication of when they thought the undershoot had started, the size of the price deficit they sought to correct, or over how many years inflation would be averaged. to measure compliance with the objective.

The recent surge in underlying consumer prices following the reopening of the economy has now cleared all the undervaluations of core consumer price inflation since April 2009.

About Alma Ackerman

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