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US: Inflation at highest level since 1990

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In the US, the consumer price index increased by 6.2% compared to October 2020. CPI increased by 0.9% compared to September, the biggest increase in four months. Both realizations exceeded all estimates and indicated that we may be in a more insecure position regarding inflationary risks. Inflation, which had the highest increase since 1990, showed that it stratified by putting it on high increases after the recovery of the pandemic; Although wage inflation is at a high level, real wages naturally erode purchasing power. It will be necessary to open a separate parenthesis especially on the perspective with wages.

 

If we look at the sub-items; Higher prices for energy, housing, food, and vehicles have fueled the load reading in inflation, and price increases that go beyond reopening-related categories have the effect of weakening the “inflation transience” thesis. Indeed, the element of impermanence cannot be counted on at present; because we now observe more modest price increases for pandemic items. Items such as commodities, energy, raw materials, food, rent, housing are more active substances. In addition, the advancing demand is in a position that feeds the high effect in terms of consumer goods and services inflation. Supply chain bottlenecks and demand for higher wages to return to work are driving costs. In a liberal and demanding market, the CPI reflection effect is easier and more transitory, while the producer costs are incurred. The drastically rising cost of goods and concerns about persistent worldwide price pressures could linger.

 

Core inflation, which excludes volatile food and energy components, increased by 0.6% compared to the previous month and by 4.2% compared to the previous year. The annual increase was the largest since 1991. Housing costs, considered a more structural component of the CPI and accounting for about a third of the overall index, rose 0.5% in October to a four-month high, fueled by data from higher rents and house prices. Hotel accommodation prices have increased. New car prices rose 1.4% last month as the global semiconductor shortage continues to limit stocks and drive up costs. Used vehicle prices increased by 2.5%. Food increased by 5.3% (the highest since January 2009) compared to last year. Gasoline posted the biggest gain since March, up 6.1% from September. Electricity costs rose 1.8%, the biggest monthly increase since 2014. Fuel oil increased by 12.3% compared to the previous month, the most since 2007. While most CPI categories rose, airfare prices fell for the fourth month and clothing prices remained unchanged. Inflation-adjusted average hourly earnings fell 1.2% year-on-year in October. Wages have strengthened markedly in recent months, but higher consumer prices are eroding Americans’ purchasing power.

 

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It is obvious that inflation will be the main factor that will put pressure on the Fed in terms of raising interest rates close to zero. Moreover, we are faced with a high inflationary effect in an economy that is in an economic environment that has solid demand and still has a certain amount of employment gap and may slow down. Powell seems to have created room for the Central Bank to monitor developments by setting the interest rate hike threshold higher. However, anchoring short-term inflation expectations is more difficult, and as the curve of inflation, which represents different maturities, changes shape, it shifts the long-term side. Although stagflation has not yet been addressed as a systemic risk, concerns that inflation may become more permanent are in a position to come into existence a little more.

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