US inflation report of 4.2 percent raises concerns

The US reported the highest inflation recorded in the last dozen years at 4.2 percent in April, riding on government stimulus packages, improved energy prices, better spending and vaccines.

The Labor Department reported the Consumer Price Index, which measures a basket of goods as well as energy and housing costs at 4 plus percent over last year, a bigger jump than the 3 percent that the analysts were expecting, fuelling concerns that the economy was in trouble.

After the release of the inflation report, the S&P 500 dropped 2.2 percent. Nasdaq lost over 2.7 percent. Some panic sell-off of US government bonds sent the yield on the benchmark 10-year bond to 1.68 percent.

US inflation rate consumer prices

Energy prices overall jumped 25% from a year earlier, including a 49.6% increase for gasoline and 37.3% for fuel oil.

Tyson Foods raised prices substantially. “Overall, we’re seeing an accelerating inflationary environment that is creating a meaningful headwind for prepared foods in the back half of the year,” said Donnie King, its chief operating officer. “We’re seeing raw material costs up over 15 percent as well as increases in logistics, packaging, and labor.”

US inflation blows past estimates 

The inflated numbers will be a challenge to the US economic policymakers, who are continuing with aggressive monetary policies and fiscal stimulus.

The White House council of economic advisers responded to the inflation figures as normalization of prices after the pandemic.

“There will be months that come in below or above expectations as strong demand meets recovering supply. Recovery from the pandemic will not be linear. The Council of Economic Advisers will continue to monitor the data as they come in,” it said.

Richard Clarida, the Federal Reserve’s vice-chair, said he was surprised by the significantly higher inflation reading, but he still expected inflation to return to “Our 2 percent longer-run goal in 2022 and 2023. If demand relative to supply was excessive and persistent and pushed up inflation the Fed would not hesitate to act and to use our tools to bring inflation back down”.

One point to keep in mind regarding inflation is the “base effect”, meaning inflation was very low at this time in 2020 as the Covid pandemic caused a widespread shutdown of the U.S. economy. Year-over-year comparisons are going to be a little skewed due to the pandemic effect.

“As the cyclically-sensitive components of CPI are still rising at a modest pace, we doubt this report will change the view of officials that inflationary pressures are ‘largely transitory,‘” wrote Michael Pearce, senior U.S. economist at Capital Economics. “It’s just that there’s a lot more ‘transitory’ than they were expecting.”

What’s to come?

Many economists are not expecting a permanent surge in inflation. “We share the Fed’s view that this isn’t the start of an upward inflationary spiral. We look for supply [and] demand imbalances to gradually be resolved and the pace of inflation to gradually cool heading into 2022,” said Kathy Bostjancic and Gregory Daco of Oxford Economics.

“The Fed is not going to panic after one startling CPI report, so you can expect to hear even more about transitory bottleneck inflation pressures over the next few weeks,” said Ian Shepherdson of Pantheon Macroeconomics.

Despite the economists and Federal Reserve officials showing no large concerns about the rising prices, there has been some reaction from the stock market with some people selling off stocks.

Warren Buffett, chief executive of Berkshire Hathaway, too reported inflationary trends in the economy.

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

Recent Posts

United to recall furloughed employees as travel recovers

United to recall furloughed employees as travel recovers

The fading of the pandemic and the rollout of vaccines has brought in some good cheer for the floundering air travel industry. More countries have opened up for business and are al
14 hours ago
UK’s Sanne agrees to consider Cinven bid

UK’s Sanne agrees to consider Cinven bid

Sanne, a UK fund administration business that provides alternative asset and corporate services, has agreed to hold talks with private equity firm Cinven over a potential £1.4bn t
1 day ago
Global stocks rise as investors ignore inflations indicators

Global stocks rise as investors ignore inflations indicators

Global stocks rose to an all-time high, with investor showing confidence in a strong economic recovery from coronavirus and the vaccine effect, but the market is still a bit cautio
1 day ago
UK watchdog whacks Amazon with probe for unfair data collection practices

UK watchdog whacks Amazon with probe for unfair data collection practices

The Competition and Markets Authority will focus on whether Amazon, Inc. favors merchants that use its delivery services.
4 days ago
Altice buys 12 percent stake in BT worth £2 billion

Altice buys 12 percent stake in BT worth £2 billion

Altice said it did not intend to make a bid for the British Telecoms company, though the takeover code also does not allow it to make an unsolicited buyout offer for six months wit
4 days ago
G7 countries agree on broad principles of minimum corporate tax deal

G7 countries agree on broad principles of minimum corporate tax deal

The world’s richest nations (G7) reached a landmark accord setting a global minimum corporate tax rate for multinationals. Would it be effective in tackling tax evasion and avoid
4 days ago