Tue. Oct 19th, 2021

The numbers: The inflation rate in the United States rose again in July and pushed last year’s rise to a 30-year high, signaling new tensions for businesses and consumers as the economy recovers of the pandemic.

Personal consumption spending or the PCE price index rose 0.4% in July, according to government data. It was the fifth major increase in a row.

The twelve-month inflation rate ended in July rose to 4.2% from 4%, the highest rate since the first Gulf War in 1991.

Federal Reserve leaders insist inflation will fall back to 2% once the economy returns to normal and the widespread shortage of labor and materials. The lack of blame has been blamed mainly on rising inflation.

The central bank wants inflation to be 2% annual average in the long run, using the PCE indicator as a starting point. Still, senior Fed officials have recently acknowledged that high inflation could persist a little longer than expected.

Read: Companies remain optimistic, even when Delta takes a small hit on the economy

General image: There is no doubt that high inflation bothers consumers and acts as a headwind to the economy. After taking inflation into account, for example, consumer spending fell in July, even as revenues rose.

The big debate about inflation is how quickly it fades and how much.

Some critics of the Fed worry about the combination of very low interest rates and high public spending that will keep inflation well above the Fed’s target until next year and intensify misery for consumers.

Still, most investors seem to have taken a position on the Fed. Bond investors, who are usually very sensitive to inflation, do not demand higher returns. And the stock market continues to set new records.

The Fed, meanwhile, will begin withdrawing its unprecedented support for the economy. However, most senior officials do not appear to have been influenced to do so due to high inflation. They just think the economy is strong enough to stay more alone.

Key details: An independent measure of inflation that eliminates volatile food and energy prices rose 0.3% in July. It is known as the base rate and the Fed considers it a more reliable weather palette for inflationary trends.

The increase in the basic rate over the last twelve months remained unchanged at 3.6%, keeping it at a maximum of 30 years.

The PCE index is seen as a more accurate measure of inflation than the consumer price index or the CPI. It tracks a wider range of goods and gives more weight to replacement, when consumers buy a cheaper product to replace a more expensive one.

What do they say? “With supply chain logistics bottlenecks and global logistics appearing to persist until 2022 and labor costs continue to rise, inflation could be stubborner than many have been anticipating,” the economist said in chief Richard Moody of Regions Financial.

Market reaction: The Dow Jones Industrial Average DJIA,
+ 0.61%
and S&P 500 SPX,
+ 0.73%
rose in trades on Friday.

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