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The Federal Reserve’s favorite inflation indicator, the basic personal consumption expenditure price index, which excludes food and energy costs, hit a 30-year high in August.
The measure rose 0.3% for the month and 3.6% from a year ago in its steepest rise since May 1991, a trend suggesting that inflationary pressures from the pandemic, catalyzed by massive spending government, supply chain bottlenecks and growing demand are not correcting as quickly as some economists had anticipated.
With the return of the most volatile food and energy categories, PCE prices rose 0.4% for the month and 4.3% year-on-year, the largest increase since January 1991, the PCE reported on Friday. Bureau of Economic Analysis.
Personal income rose 0.2% for the month, while spending rose 0.8%.
The September ISM Manufacturing Index survey also showed prices are up, with 81.2 percent of respondents reporting increases from 79.4 percent in August.
“Supply chain concerns extend beyond electronics and chips in most other commodities. Delivery times are getting longer, shipping lanes are slowing down and we will see no end in 2021, ”said a respondent referring to the backlogs and delays that still plague its electrical equipment, appliances and components sector, according to CNBC.
Much of the price index data in recent months has validated the argument that inflation may not be a transitory phenomenon this time around. However, some economists and financial analysts cited by the White House to justify their $ 3.5 trillion spending bill still believe inflation will subside as market imbalances balance out.
Until recently, Federal Reserve officials predicted that inflation would moderate and approach pre-pandemic levels of 2% or less by the end of 2021, but continued supply and shortages labor force has changed this perspective. Fed Chairman Jerome Powell said earlier this week that he found relentless inflation “frustrating.” He said he can predict the possibility that shortages, and therefore inflationary pressures, will persist until next summer.
The Fed’s inflation target has long been an average of 2% over the long term. To compensate for the underestimation of the inflation target in recent quarters, the Fed has tolerated inflation above 2% for a number of consecutive quarters. In the event of a surge in inflation, one monetary instrument available to the Fed to slow it down is to raise interest rates, but not without risking further recessionary effects.
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