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Inflation continues to rise in USA

Inflation continues to rise in USA

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Prices in the US are rising at their fastest rate in almost 40 years, with inflation up 7 per cent year-on-year in December.

Strong demand and scarce supply for key items such as cars are driving the increases, which are putting pressure on policymakers to act.

The US central bank is expected to raise interest rates this year.

The rise in borrowing costs is aimed at reducing demand by making purchases such as cars more expensive.

December’s increase marked the third month in a row that the US annual inflation rate has hovered above 6 per cent – well north of policymakers’ 2 per cent target. The last time the pace of inflation exceeded that level was 1982.

Housing costs were up 4.1 per cent year-on-year, while the cost of groceries rose 6.5 per cent – compared to a 1.5 per cent annual average over the last 10 years.

Wednesday’s report from the Labor Department showed signs that some of the pressures may be easing.

The cost of energy dropped 0.4 per cent from November to December – its first decline since April. But over 12 months energy costs are up by nearly 30 per cent and have returned to their upward trend in recent days.

“Overall, this is every bit as bad as we expected,” Paul Ashworth, chief economist at Capital Economics, said of the December inflation report.

Reacting to the latest report, President Joe Biden said that it “demonstrates that we are making progress in slowing the rate of price increases”.

He added that there is “more work to do” in the US and noted that “inflation is a global challenge, appearing in virtually every developed nation as it emerges from the pandemic economic slump”.

The price pressures occurring in the US have been seen to varying degrees around the world.

The Organisation for Economic Cooperation and Development, which represents more than 30 of the world’s largest economies, said this week that inflation among its members had hit its highest rate in 25 years in November.

In the UK, inflation hit a 10-year high in November, while globally, prices are rising at their fastest pace since 2008, according to the World Bank.

While many countries are grappling with higher food and energy costs, the US has seen an unusually large pick-up in inflation.

That’s due in part to strong demand from households, whose spending got a boost from government coronavirus aid and shifted suddenly from things like travel to furniture during the pandemic.

Economists in the US were initially hopeful that the pressures would ease as the pandemic faded. But ongoing production snarls and the emergence of virus variants have made the price increases more persistent than expected. (BBC)