Inflation in the US is rising slightly more than expected and well above the central bank’s target.
Price growth in the US has risen sharply in the wake of the pandemic, and consumers are now satisfied. The question is how long the central bank will hold up against high and prolonged inflation, before it intensifies.
US inflation rises to 5.4 percent in September, shows Figures from the US Department of Labor.
Price (inflation) was expected to grow 5.3 percent in advance compared to the same period last year, unchanged from the previous month, according to figures from Infront.
In both June and July, the US inflation rate reached 5.4 percent, the highest level since 2008. According to CNBC.
After adjusting for energy and food prices (core inflation), annual growth was 4.0 percent in September, unchanged from August and in line with expectations.
However, it is well above the US Federal Reserve’s 2 percent inflation target. But the target is flexible, so that inflation can exceed 2 percent in periods to offset lower inflation earlier.
Central banks’ weapon against hyperinflation is monetary tightening, usually in the form of raising interest rates. Initially, the Fed will tighten its purchases of supporting securities, which are likely imminent.
The fear is that Central Bank Governor Jerome Powell will raise interest rates sooner than expected, if high inflation continues.
Fear of an early interest rate hike
The Fed did not indicate any rate hikes until the second half of 2022 at the earliest, as they assumed high inflation was linked to the post-pandemic reopening, and therefore temporary.
However, a sharp rise in energy prices, bottlenecks in production and a shortage of employment have heightened fears of rising inflation.
In the past 12 months, the US consumer price energy index rose 24.8 percent.
“This is a situation that demands a lot from the Federal Reserve, which on the one hand wants to pursue a sustained expansionary monetary policy for the sake of the real economy. But where inflation expectations suggest monetary policy should be less expansionary,” Handelsbanken wrote in an analysis ahead of today’s numbers.
The dollar is getting stronger
The dollar is getting stronger according to the numbers, so you now have to pay 8.56 crowns for one dollar, about three or more than it was before inflation became known. At the time of writing, US stock markets were preparing to open cautiously in plus.
Inflation is a hot topic in stock markets. Concerns about the consequences of a sudden tightening and a hike in interest rates as a result of persistently high inflation caused major turmoil in stock markets during the fall.
The next meeting of the Federal Reserve ends on November 3.
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