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US inflation rose 4.2% in April from a year ago bigger jump rather than what economists expected, it raises concerns about what is heating the world’s largest economy.
Higher inflation readings combine to increase fiscal support, supply caps and increased spending as economic activity is accumulating after the spread of coronavirus vaccines.
US stocks fell after the inflation report, when the S&P 500 closed 2.2% lower, it was the biggest one-day drop since February. The big tech Nasdaq, whose companies are particularly sensitive to higher inflation and interest rates, lost about 2.7 percent.
U.S. government bond sales also accelerated, with a benchmark 10-year bond yield of 1.68 percentage points up 0.06 percentage points.
The rise came as the European Commission sharply raised its economic outlook for the next two years, as a rapid vaccination campaign helped the eurozone recover from the pandemic.
The euro area will grow by 4.3% this year and 4.4 percent in 2022, Brussels said, compared to previous two-year growth forecasts of 3.8 percent.
In the US, inflation jumped 4.2% the largest increase since 2008 and a significant jump compared to the 2.6 percent reading in March.
The rise reflects relatively low levels of inflation at the beginning of the onset of coronavirus. It poses a challenge to U.S. economic policy makers, including the Federal Reserve and the Bide administration, who continue to pursue strong monetary and fiscal stimuli to help the U.S. recover from the pandemic.
In response to the data, the White House Council of Economic Advisers said the U.S. economy is experiencing a “normalization” of prices that is recovering from the pandemic. “There are months that come below or above expectations as strong demand picks up supply. The recovery from the pandemic will not be linear. The Council of Economic Advisers will continue to monitor data as it enters,” he said.
Richard Clarida, the Fed’s vice president, said he was “surprised” by the significantly higher inflation reading, but still expects inflation to “return to a 2% longer duration in 2022 and 2023 – or maybe slightly higher”. .
If the “excessive supply and demand for supply” were to drive up inflation, “the Fed” would not act without hesitation and will use our tools to drive back inflation, ”he said.
Some Republicans obtained the data to emphasize that both the Biden administration and the Fed underestimated the risk of higher inflation.
“With the release of the Consumer Price Index this morning, it’s clear that inflation is here,” Pennsylvania Republican Sen. Pat Toomey wrote on Twitter. “The Federal Reserve can’t pretend it’s a remote problem. It’s time for the Fed to reconsider its policy adjustment stance.”
However, many economists do not expect a steady rise in inflation.
“We share the Fed’s view that this is not the beginning of the rising inflation spiral. We are looking for supply [and] call for the imbalances to be resolved gradually and for the inflation rate to gradually cool by 2022, ”said Kathy Bostjancic and Gregory Daco of Oxford Economics.
“The Fed won’t panic after an astonishing KPI report, so you can expect to know more about bottleneck inflation pressures in the coming weeks,” Ian Shepherdson told Pantheon Macroeconomics. “But this report means that the first part of the highest inflation – the reopening point – is real. It is no longer a forecast, and other sharp rises are coming.”
Faith officials are more tolerant of inflation, mainly because consumer prices have fallen below the central bank’s 2 per cent target. They have also tried with the free money policy to make it rise.
Despite limited concern from the Fed and Treasury, the alarm over higher inflation has been fairly widespread in U.S. businesses and has been cited by investors as a compelling reason stock market sale this week.
Berkshire Hathaway CEO Warren Buffett said his company’s executives this month see “very high” inflation. “People raise prices for us, and it’s accepted.”
Tyson Foods said prices have risen significantly this week. “Overall, we are seeing rapid inflation in the environment in the last half of the year, which is creating significant wind gusts for prepared food,” said Donnie King, head of operations. “We are raising raw material costs by more than 15 per cent, as well as increases in logistics, packaging and manpower.”
Additional report by Matthew Rocco and Colby Smith
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