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Some economists expressed concern that if prices accelerate too fast and stay high for too long, expectations of further price increases will gain a foothold, thereby pushing up wage demand and possibly triggering the wage-price spiral that plagued the economy in the 1970s.

July 30, 2021

3 minute reading

This story originally appeared in Epoch Times

Excluding volatile food and energy components, consumer prices have soared far beyond U.S. Federal ReserveAchieved the 2% target in the year to June, the highest level since 1991, and intensified the inflation.

The so-called core personal consumption expenditure (PCE) price index does not include food and energy, and is the Fed’s preferred method of measuring inflation. After rising 3.4% in the year to May, it rose by 3.5% in the 12 months to June. .Ministry of Commerce Friday said. This Last time The core PCE inflation indicator saw a similar year-on-year vault in July 1991.

The Fed uses core PCE as a key inflation indicator Monetary Policy, Its long-term average inflation target is 2%.

Although some economists have issued warnings about inflation, Fed officials and members of the Biden administration insist that price increases are temporary, and they believe that inflationary pressures will ease as the pandemic-related supply chain disruptions are eliminated.

Federal Reserve Chairman Jerome Powell told reporters on July 28 (pdf) Inflation may be hotter than Fed analysts expected and last longer.

Powell said: “The process of reopening the economy is unprecedented, and so is the shutdown at the beginning of the pandemic.” “As the reopening continues, bottlenecks, recruitment difficulties and other constraints may continue to limit the speed of supply adjustments, which increases. To the possibility that inflation may be higher and longer lasting than we expected.”

But Powell reiterated his frequently repeated view that in the next year or so, the inflation rate will be closer to the central bank’s 2% target.

“If we see signs that the inflation path or long-term inflation expectations are significantly and continuously exceeding the level consistent with our goals, we will be prepared to adjust our policy stance,” he said.

On July 28, the Fed maintained the overnight benchmark interest rate at a level close to zero and maintained its large-scale asset purchase plan. Powell stated at a press conference that the U.S. economy is “substantial further progress in achieving the Fed’s dual goals.” “There is still some distance. The task of price stability and employment maximization.

Economists and investors’ concerns have shifted from slow growth, high unemployment and deflationary pressures in early 2021 to inflation.

Robert R. Johnson, professor of finance at the Hyde School of Business at Creighton University, said in an email statement to The Epoch Times: “You can’t talk to anyone in the investment field without worrying about inflation becoming the top issue.”.

Some economists expressed concern that if prices accelerate too fast and stay high for too long, expectations of further price increases will gain a foothold, thereby pushing up wage demand and possibly triggering the wage-price spiral that plagued the economy in the 1970s.

At the same time, according to a survey, more than 80% of Americans are worried about inflation. Skynova’s investigation, Which also shows that 61% of people believe that inflation will have a negative impact on their lifestyle.

Tom Ozimek

Follow Tom on Twitter: @OZImekTOM

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