With the United States appearing on track for an economic recovery as coronavirus restrictions are being lifted, there are some stumbling blocks along the way.
The consumer price index, which is used as an indicator of inflation, increased by 0.8 percent in April, according to the Bureau of Labor Statistics, bucking a projected 0.2 percent rise.
This is the biggest monthly increase since 2009, and helped contribute to a rise in the inflation rate over the past year to 4.2 percent, compared to 2.6 percent the previous month, according to MarketWatch.
So how is the consumer price index determined, and what does this mean for Americans?
The index is defined by the BLS as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
In layman’s terms, the index going up means things are getting more expensive due to the economy’s rapid reopening.
Dan Suzuki: Inflation is going to last longer than people think. “There’s probably a lot of room to run for these cheaper, out-of-favor parts of the market.” https://t.co/VyTszZ6QIP pic.twitter.com/Sdnk4gRUzw
— CNBC (@CNBC) May 12, 2021
As MarketWatch put it: “Businesses can’t keep up in demand, a problem exacerbated by ongoing bottlenecks in the global trading system tied to the pandemic. Computer chips are especially in short supply and that’s held up production of new autos and other manufactured goods.
“Americans are also rushing to dine out, travel or go far away for vacation, activities they shied away from during the pandemic. That’s also driving up prices at popular vacation resorts and other venues where people plan to congregate.”
Used cars in particular saw a record setting 10 percent price increase in April, as there is a shortage of them on the market.
However, Federal Reserve officials do not feel that this will result in any policy changes on their end, at least not now.
“This is one data point, as was the labor market report,” Federal Reserve Vice Chairman Richard Clarida said, Yahoo Finance reported.
“But over time, we’ll be taking signal from this data and it’s going to be very important that any pressures to inflation that arise be transitory.”
The news resulted in a hefty stock market dip Wednesday, with the Dow Jones Industrial Average dropping 682 points and the Nasdaq Composite dropping 357 points.
Economists and politicians were already worried about the abyssal April jobs report numbers, which showed the United States only added 266,000 jobs last month, so the index serves as more unforntuate news.
Meanwhile, the Biden administration has proposed $6 trillion in new spending, and it doesn’t take an Ivy League economist to understand that going on a wild government spending spree will cause the dollar to become more worthless — i.e. people’s money simply won’t go as far.
Republican lawmakers have criticized the Federal Reserve’s response to inflation, and some are calling for action before it is too late.
“With this morning’s Consumer Price Index (CPI) release, it is clear that inflation is here. The Federal Reserve can no longer pretend this is a distant problem. It is time for the Fed to revisit its accommodative policy stance,” Pennsylvania Republican Sen. Pat Toomey tweeted.
With this morning’s Consumer Price Index (CPI) release, it is clear that inflation is here. The Federal Reserve can no longer pretend this is a distant problem. It is time for the Fed to revisit its accommodative policy stance. https://t.co/Rj6tkhzGdh
— Senator Pat Toomey (@SenToomey) May 12, 2021
Americans will likely continue to feel the consequences of price increases, especially when it comes to transportation, as gasoline and plane tickets continue to rise in price.
The economic consequences of the economic rebound are starting to come to fruition, and it is clear not all of them are going to be positive.
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