The United States .. accelerating prices and wages

The United States .. accelerating prices and wages
The central bank was forced to raise interest rates to keep prices in check, in a move that could threaten the economic recovery if the unemployment rate remains higher than it was before the pandemic.

According to US government data released last Friday, consumer prices rose last September at their fastest pace in 30 years, which led to a rise in consumer spending despite cutting unemployment grants that the government spent during the Corona pandemic.


And writer David Harrison says - in a report published by the American Wall Street Journal - that the new reports indicated that the high demand from consumers in light of the lack of supply led to an increase in inflation rates, which would negatively affect the standard of living of lower-income families. .

The central bank was forced to raise interest rates to keep prices in check, a move that could threaten the economic recovery if the unemployment rate remains higher than it was before the pandemic.

Although officials have declared the latest wave of inflation temporary, they have stressed that government support plans for the economic recovery can be withdrawn faster than expected. "It's a really difficult journey over the next few months," says Ian Shepherdson, chief economist at Pantheon Macroeconomics Group.

The US Commerce Department said last Friday that the Federal Reserve's inflation measure (which is the personal consumption price index) rose by 4.4% last September compared to the previous year, and rose by 0.3% from the previous month, the fastest pace since 1991, excluding food prices. Known for its constant volatility, the index rose 0.2% on a monthly basis, and 3.6% over the year.

The Labor Ministry reported that the labor cost index (a measure of compensation that includes wages and benefits) rose by 1.3% in the third quarter of this year, the fastest pace since 2001.

Workers in the leisure, hospitality and retail sectors also received a significant wage increase, and employers struggled to fill job vacancies.

And the Consumer Confidence Index issued last Friday by the University of Michigan showed that Americans are still in a gloomy mood, as the index fell from 72.8 last September to 71.7 last October, which is much lower than the index recorded in February 2020. Before the outbreak of the epidemic, which is 101.

High Inflation
According to opinion polls conducted last October, American consumers expect the inflation rate to reach 4.8% next year, the highest rate since 2008, and these pessimistic expectations are a source of concern for policy makers because they may push companies and workers to raise prices and salaries in the future. .

Among the factors that deepen the current crisis, are the difficulty in finding products in the market due to the problems of global supply chains, the continuing fears of the spread of the Corona virus, and the difficulty in finding child care services, which increases employment problems and raises unemployment rates.

According to the author, these factors have combined to push the inflation rate towards a much higher level than the target set by the Federal Reserve (2%), and experts expect the inflation rate to remain high until the pandemic-related turmoil stabilizes.

Shepherdson says that every month that passes with rapidly rising prices increases the pressure on Federal Reserve Chairman Jerome Powell.

"This situation shows the need for the Fed to act early, not because they are moving away from the set rate, but because the risks have already gone up," he adds.

The central bank is expected to announce next week that it will start reducing its asset purchases in November, and will start raising interest rates next year.

“The Fed now has to get through this difficult transition from adjustment to tightening,” says Joe Brusolas, chief economist at RSM Consulting, explaining that the biggest concern at the moment is a lack of supply that could keep prices High.

Optimistic Forecast
According to the Commerce Department, annual consumer spending rose by 0.8% in August to 0.6 percent in September after adjusting expectations, in light of rising prices, product shortages and an increase in the number of new cases of coronavirus, and the ministry's report indicates that personal income fell by 1% last month; This was driven by a 72% drop in unemployment insurance benefits, which offset a 0.7% increase in wages and benefits.

The cutting of unemployment grants at the beginning of last September forced consumers to rely on the savings they collected during the pandemic, and the savings rate decreased from 9.2% in August to 7.5% last September, which is what the savings rates were at the end of 2019, i.e. before the outbreak of the epidemic.

Experts believe that the slowdown in spending will be short-lived, as the decrease in the number of new Corona virus cases and the rise in wages should lead to continued high demand ahead of the holiday season.

The newspaper "Market", which specializes in market indicators, expects the economy to grow at a rate of 5% in the fourth quarter of this year, after it was within 2% during the third quarter.