On Tuesday, the Labor Department stated that the Consumer Price Index rose by 5.4 percent in the past year, the highest 12 month climb since August 2008. While the economy is on its path of recovery, this data triggers a debate whether the U.S. might enter an inflationary period.
The Consumer Price data hinted at particular steep price increases in cars, airline fares and apparel. Prices for used cars have risen 10.5% in the last month alone, driving a third of the index, as young Americans increasingly demand car ownership amid continuing supply shortages.
Market actors have become increasingly wary regarding inflation, observing turbulent markets driven by nearly $6 trillion in government relief since the start of the pandemic and low interest rates. The recent price spike now sheds attention to the Fed’s future monetary policy, particularly a lift of interest rates.
Fed Reserve Chair Jerome Powell, however, is convinced that inflation will be transitory and that supply chains will adapt. David Kelly, chief global strategist at JPMorgan Funds believes that inflation has spiked for the moment, stating that “the pace of economic recovery may slow a little in the months ahead and inflation may ease from recently very elevated levels.”
What do you think, has inflation peaked for now or will excess demand drive longer sustained inflation? Leave your thoughts below.