Inflation overflows in the US: the CPI hits highs not seen since 1982 and corners the Fed

It was the most anticipated data of the day and it has not disappointed. Inflation in the US maintains its upward trend, at least in year-on-year terms, and stands at 6.8%, maximums not seen since 1982, with Paul Volcker as chairman of the Fed and official interest rates at the fifteen%. Today, the situation is very different. Although the rates of inflation are similar to those of 1982Jerome Powell, current Fed chairman, keeps rates at almost 0%. The debate is served.

Except for the small respite in August, inflation in the US has not stopped rising since November 2020. Year-on-year price growth rates have exceeded market expectations month after month (in October prices rose 6.2% , highs since 1991), which however has not prevented the stock markets from continuing their bullish rally and the Fed from keeping the price of money at levels close to zero.

In monthly terms, inflation has stood at 0.8%, above the 0.7% expected by the markets. On the other hand, core inflation, which does not weigh fresh food or energy, has been established at 4.9%, the highest level since 1992. All this data puts under pressure to a Federal Reserve that has the inflation objective in 2% in the medium term.

In components, used cars and trucks stand out once again, the price of which has skyrocketed by 31.4% in annual terms. The shortage of chips has caused stoppages in car factories, preventing all the new cars that the economy demands from being manufactured. This has generated a deviation in demand towards second-hand cars that is triggering their prices.

However, perhaps what is most striking is the depth that the price increase is reaching. What began as a purely energy phenomenon is already reaching all the components that make up the North American consumer’s shopping basket: food rises 6.1%, new cars 11.4%, clothing 5%, transport almost 4% … inflation is already everywhere.

Fed laxity combined with powerful inflation has led to real interest rates to present negative levels that haven’t been seen in over 60 years. These negative real interest rates (official rates minus inflation) cause the loss of purchasing power of the most conservative investors and households that keep their savings in deposits or assets that do not appreciate with inflation.

Everything goes up month by month, with the same wages every time less goods and services are bought. Commerzbank analysts warn in a note that the price hike already reaches all goods and services, not just the usual suspects (gasoline and second-hand cars). “Production bottlenecks in the automotive industry and a greater demand for services that require social contact have played a key role here. “

“Although the price increases of these goods and services should be temporary, the upward turn in rents that we had already noticed a month ago was confirmed. They have risen sharply once again, something that is very important because this item of spending it represents a third of the basket of the CPI “, assure the economists of the German bank.

The other part of the Fed’s mandate, the labor market, continues to show new signs of strength, subsidy request data has been impressive this week falling to its lowest level since 1969, while unfilled job vacancies remain. marking all-time highs at about 11 million positions.

“This, along with rampant inflation, makes the Fed’s position increasingly uncomfortable and the market now sees a possibility of up to three increases in interest rates next year (we believe, however, that it will stop at two) “, say the analysts of the Nordic bench SEB.

“Pressure on the Fed is mounting as rampant inflation has become a hot political issue. Before today’s big data release, the US inflation figure is already at highs since 1992. President Joe Biden had “Yesterday to prepare people for a new cold shower. Biden assured that the information that will be published tomorrow does not reflect the current reality and does not reflect the expected price decreases in the coming weeks and months, as in the car market.”