The consumer-price index reached 9.1%, its fastest pace in nearly 41 years, as strong consumer demand collides with supply shortages. ~ Wall Street Journal
U.S. inflation accelerated to a 9.1% annual rate in June, its fastest pace in nearly 41 years. Consumers are seeing prices rise sharply for a variety of goods and services as strong demand collides with persistent supply shortages.
Inflation is one of the most vexing issues facing economists and government policy makers, and is a factor raising the risk of U.S. recession.
The current bout of inflation has several causes, many linked to the pandemic. For one, consumers have been flush with savings from government stimulus programs, leading them to open the spigot for goods that are in scarce supply.
Supply-chain disruptions have also persisted across the global economy, with Russia’s invasion of Ukraine and Covid-19 cases in China adding additional pressures. Energy prices have gone up sharply.
Fewer workers are in the labor market, encouraging those who are working to demand raises. And low interest rates from the Federal Reserve have made borrowing cheaper, making big purchases more attractive. The Fed is now moving rapidly to make borrowing more expensive, using the central bank’s primary tool of raising rates.
Inflation reflects the broad rise of prices or the fall in the value of money. It generally results from too much demand chasing too few goods or limited services, leading to broad price increases.
To measure inflation, Labor Department’s consumer-price index, or CPI, has become the established benchmark. It is calculated using a survey of households and only covers spending on goods and services. It excludes expenditures that aren’t paid for directly, such as medical care paid for by a person’s health insurance. Its limited set of expenditures can make CPI more volatile.
The personal-consumption-expenditures price index, or PCE, takes into account a broader range of expenditures—and feedback from businesses—to provide a more expansive picture of price changes. This inflation reading is the Federal Reserve’s preferred measurement. The Commerce Department releases its PCE estimate monthly as part of its income and spending report.
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