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US Inflation Hits 39-year High As Consumer Prices Increase By 7% In 2021

Inflation in the US hit its highest level last month in over 40 years, with a 7% increase over the previous year, further driving household costs, eroding wage

US

Image: AP


In the United States, inflation hit its highest level last month in nearly 40 years, with a 7% increase over the previous year. This is driving up household costs, eroding wage growth, and putting pressure on President Joe Biden and the Federal Reserve to confront what has become the largest danger to the US economy, AP reported.  As per the USA Today, inflation which hit a new peak in December has affected the prices of basics like food, rent, and vehicles due to intractable supply-chain bottlenecks and a workforce shortage. 

Further, the Central Bank of the United States is likely to hike interest rates this year. The increase in borrowing costs is intended to reduce demand by raising the cost of goods such as vehicles which would make it more expensive, BBC reported. The spike in December is considered to be the third month in a row that the US annual inflation rate remained over 6%, considerably beyond policymakers' objective of 2%. The last time inflation surpassed that amount was in 1982. 

Hike in consumer prices

As per BBC, housing expenses increased by 4.1% year over year, while grocery prices increased by 6.5%, relative to a 1.5% yearly average for the previous ten years. Further, due to a lack of semiconductors, automakers have been unable to produce enough new automobiles, hence, used car prices have risen by more than 37% in the last year. Furniture costs have risen approximately 14% in the last year. 

In addition to this, according to Wells Fargo economist Sam Bullard, COVID-19's highly contagious Omicron strain has undoubtedly exacerbated price hikes by causing more worker absences in global distribution networks as well as slowing shipments, ANI reported.   

According to the US Labour Department, a measure of inflation that excludes volatile food and gas costs increased by 5.5% in December 2021, the highest level in decades. Inflation increased by 0.5% in November, compared to 0.8% the previous month. Surge in prices may drop further if supply chain problems are resolved, but most economists believe inflation will not return to pre-COVID-19 pandemic levels very soon. 

The December inflation figure, according to Paul Ashworth, the chief economist at Capital Economics, "is every bit as bad as we expected," BBC reported. Furthermore, the inflationary pressures have placed US President Biden on the defensive. Biden stated the new data "demonstrates that we are making progress in slowing the rate of price increases." Biden went on to say that the nation has "more work to do" and that "inflation is a global challenge, appearing in virtually every developed nation as it emerges from the pandemic economic slump."

'US is in well-positioned to attack the challenges and prices and costs'

Meanwhile, following the inflation report, in a news conference, US National Economic Council Director Brian Deese stated that the US is well-positioned to combat price increases head-on. As per ANI, "Given the unique strength of the United States' economic recovery, overall growth, as well as the labour market, we are well-positioned to attack the challenges and prices and costs head-on," Deese said on Wednesday. According to Deese, addressing the price increase would necessitate a more cost-effective growth of the US production capacity economy all across the nation.   

(Image: AP)

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