Biden administration thinks recent inflation boom could last for quarters, not months

The opinion of White House officials is that a recent surge in inflation could last for some time, but that the spike is ultimately transient and will subside once the widespread bottlenecks that have severely disrupted the supply chain. supply will begin to dissipate.

The government announced Tuesday morning that prices for goods and services had risen the most in 13 years, fueling concerns that a rapidly recovering economy could lead to runaway growth. The Labor Department said in its monthly report that consumer prices rose 0.9% from May and 5.4% over the past year.

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Excluding oil and gas price volatility, core inflation jumped 4.5% over the past year, the biggest increase since November 1991.

The rebound in consumer prices has coincided with the stronger-than-expected economic recovery from the pandemic as Americans, filled with stimulus cash, start spending again eagerly, splurging on everything from vacations to newbies. clothing.

While the Biden administration estimates the price hike could last for quarters, not months, until the supply chain bottleneck clears, it believes the surge in Inflation has already peaked in some sectors, such as used cars, the price of which climbed 10.5% in June – the largest monthly increase since records began in January 1953.

CONSUMER PRICES UP 5% PER YEAR, HIGHER SINCE AUGUST 2008

Federal Reserve Chairman Jerome Powell has mainly downplayed the rise in the prices of goods and services, attributing the increase to supply shortages and a pent-up wave of demand among consumers as more and more Americans are vaccinated and are embarking on their post-pandemic life. Although he said inflation could turn out to be “higher and more persistent than expected,” Powell maintained that it is likely transient.

Investor concern is that rising inflation could force the Fed to brake sooner than expected and start withdrawing the massive monetary support it is providing to the economy.

Policymakers at the US central bank still wonder how to handle the deeply contradictory economic data: While inflation is on the rise, job growth has been slower to reach pre-crisis levels, with some 9 , 5 million Americans still unemployed.

During their two-day policy-making meeting in June, Fed officials voted unanimously to keep interest rates near zero, where they have been sitting since March 2020, and pledged continue to buy $ 120 billion in bonds each month.

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The Fed gave no sign in June that it was imminently considering cutting its aggressive bond buying program, even as policymakers raised headline inflation expectations to 3.4% for 2021 – a more than the forecast for March. Minutes from their June 15-16 meeting revealed officials discussed how and when to start unwinding their support, but most policymakers reiterated they were not ready to begin. to withdraw their asset purchases.