US Consumer Prices post biggest gain in 8-1/2 years; underlying inflation heats up

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US Consumer Prices post biggest gain in 8-1/2 years; underlying inflation heats up

On Tuesday, US Labour Department said in a statement that its index for US Consumer Prices that measures an average price of a basket of consumer goods and services such as transportations and foods, shot up by the most in more than eight-and-a-half years last month, as an acceleration in inoculation drive against the pandemic alongside massive fiscal stimulus had led to a Newtonian upsurge in demands, kickstarting a fiscal trend what many analysts had claimed to be an onset of a momentary period of higher inflation.

Aside from that, other economic data published earlier in the day had also unleashed an increase in underlying prices in March as a broad-based reopening of economy had outweighed concerns related to a telescoped supply chain alongside higher commodity prices.

Nevertheless, a majority of Wall St. analysts alongside the Fed Chair Jerome Powell were expecting that a latest step-up in US inflation would be short-lived, while supply chains were anticipated to become more pluperfect, however, bottlenecked supply chains in many sectors were plausibly illustrating a shift of demand towards goods from services amid a pandemic-era new normalcy.

US Consumer prices jump, underlying inflation heats up

In tandem, according to Labour Department data released earlier in the day, the US Consumer Prices Index climbed 0.6 per cent in March, marking up the index’s largest gain since the August of 2012, though a 9.1 per cent rise in gasoline prices accounted for roughly a half of the increases in consumer prices last month, while food prices edged 0.1 per cent higher.

On top of that, on a year-on-year basis, core US CPI (Consumer Price Index) soared 1.6 per cent last month following a 1.3 per cent gain last month, while the US Fed’s key inflation indicator, core PCE (Personal Consumption expenditure) price Index stood at 1.5 per cent in March, well below a 2 per cent target of the US Federal Reserve.

Meanwhile, adding that the Fed would not act until it could contemplate the recent changes in prices as permanent, a chief economist at FHN Financial in New York, Chris Low said, “Inflation is a process and not a one-time event.

These bottlenecks are one offs. The Fed will not consider action until it views price levels changes as permanent rather than temporary, something it does not consider possible until the economy is at full employment”.