US Inflation jumps to 7%, highest in four decades

13 Jan 2022 , 01:17 PM

US Inflation has jumped at its fastest pace over the past 40 years at the mark of 7%. This is causing household expenses to increase, is eating into wage gains, and raising pressure on the US President, and the Fed Reserve to address the issue timely. This rising inflation could become the biggest threat to the US economy.

US economy is witnessing a steep rise in prices for gas, food, cars, and furniture during its rapid recovery from pandemic recession. Shortages of workers and raw materials disrupted the supply chain leading to higher spendings among Americans.

As per the reports from the Labor Department prices in the US have surged 0.6% from November to December, and 5.5% on a y-o-y basis.
These soaring prices are depriving many Americans of receiving healthy pay increases and making it harder for low-income households to afford basic expenses.

The outbreak of the omicron variant and severe weather has compounded supply-chain problems causing shortages and higher prices at the US grocery stores over the last few weeks. Even restaurants and other food chains have hiked the prices by over 2%, passing increased labor and food costs to the customers.

On Tuesday, Chair Jerome Powell told Congress that if it becomes necessary to fight high inflation more aggressively, the Federal Reserve is prepared to accelerate the interest rate hikes it plans to begin this year.

It is already anticipated that Fed will increase their short-term benchmark rates at least thrice by the end of March 2022. This increase in rates is most likely to impact the borrowing costs for home, business loans, and auto purchases, potentially slowing the economy.

In his testimony to Congress on Tuesday, Powell expressed, “the Fed mistakenly believed that supply chain bottlenecks that have helped drive up the prices of goods wouldn't last nearly as long as they have. Once the supply chains were unsnarled, prices would come back down.”

Biden’s Administration is facing public discontent over this spike in inflation, but the president assured that investments in ports, roads, bridges, and other infrastructure would help by loosening growling supply chains.

The S&P 500 added roughly 0.28% to 4,726.35, and the Nasdaq Composite rose 0.23% to 15,188.39 for its third straight positive day. The Dow Jones Industrial Average shuffled between modest gains and losses through the session, finished with a minor gain of 38.3 points, or 0.11%, at 36,290.32.