Jakarta, CNBC Indonesia – The United States (US) has a new ‘enemy’. Not China or Russia or any country in the world, but related to the domestic situation.
While grappling with the rise in Covid-19, due to Omicron, the US is now also hit by the biggest annual inflation. Even the highest in almost four decades.
Launching Reuters, Wednesday (12/1/2022), the Consumer Price Index (CPI/CPI) rose 0.5% in December 2021, after rising 0.8% in the previous November. US consumer prices rose strongly in December on high rents.
In addition, consumers also paid more for food, although the food price increase was 0.5% lower than in the previous three months. Prices of fruits and vegetables rose although beef fell 2.0% after recent sharp gains and gasoline prices fell 0.5% after rising 6.1% in November and October 2021.
In the 12 months to December, the CPI jumped 7.0%. This was the largest year-to-year (yoy) increase since June 1982 and followed a 6.8% increase in November.
Rising inflation also eroded wage gains with inflation-adjusted average weekly earnings down 2.3% yoy in December. Despite overheated inflation, the December reading was actually what the market had expected, with Wall Street’s main indexes turning green at the close of yesterday’s local time.
Meanwhile, US President Joe Biden said almost every country is suffering from inflation as the global economy recovers from the pandemic. “This report underscores that we still have more work to do, with price increases still too high and straining family budgets,” Biden said in a statement.
Previously, the Federal Reserve (Fed) will also start raising interest rates in early March.
Fed Chair Jerome Powell said the US central bank was prepared to do whatever it took to keep high inflation from “taking root”.
This was stated by Powell Tuesday, in his testimony in a hearing session on his candidacy before the Senate Banking Committee for his second four -year term as head of the central bank. He was re -nominated by Biden of the Democratic Party, despite being previously appointed Republican by former US President Donald Trump.
“The Fed will be forced to start raising rates in March and depending on the political pressure on them, from both sides, they will have to raise rates four or more times this year and potentially more next year,” said chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina, Chris Zaccarelli,
Inflation is well above the Fed’s flexible 2% target. This is driven by improvements in an increasingly tight labor market. The jobless rate fell to a 22-month low of 3.9% in December. Markets had been pricing in about an 80% chance of a rate hike in March, according to CME’s FedWatch tool.
Economists say the nature of inflation appears to have caught Fed officials off guard. There are concerns that inflation expectations could take root and force the Fed to aggressively tighten monetary policy, potentially leading to a recession.
“This is the first time the Fed is pursuing instead trying to prevent inflation that hasn’t existed since the 1980s. Brace yourselves,” said Diane Swonk, chief economist at Grant Thornton in Chicago.
(tfa)
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