January 13, 2022

US Inflation Makes Heat! Will The Fed Change Direction?

 The inflation rate was reported to grow at the fastest rate in almost 40 years during December based on a report released by the Department of Statistics.

The consumer price index (CPI) or CPI which is used to measure prices based on various types of goods increased by 7% per year and for the monthly basis count, the CPI increased by 0.5%. This reading is in line with the expectations of Economists who are targeting a 7% increase per annum. However on a monthly basis, the actual reading is much higher where experts are targeting only a 0.4%increase.

This annual movement of inflation is the fastest since June 1982. Excluding food and energy prices i.e. Core Inflation, increased 5.5% year -on -year and 0.6% from the previous month. This reading is also more than the experts' estimate of 0.1%. For core inflation, it is the largest annual growth since February 1991.

Despite this increase in inflation, used vehicle prices have been the main driving factor following supply chain constraints which limited the production of new vehicles by another 3.5% increase in December. This brings the increase from a year ago to 37.3%.

The Fed continues to focus on inflation data closely and expressed readiness to raise interest rates this year in an effort to combat rising prices. While the central bank uses the price index of personal consumption expenditure as its primary measure of inflation, policymakers take in a variety of information in making decisions.

The US dollar index, which measures the strength of the greenback against major currencies, declined immediately after its release.