MAY 17, 2021 – INFLATION PICKS UP STEAM
Consumer prices jumped in April by 4.2 percent, the greatest movement in any 12-month period since 2008, as the recovery, post-covid, picks up steam. In comparison, prices were up 2.6 percent for the 12-months ended in March. Policy makers are watching to see if this surge is temporary, as they have asserted, or if it has gathered momentum.
The Fed wants to see more data before they will change monetary policy. They want to hold rates near zero until inflation averages 2 percent or more, and full employment has been reached. If inflation proves to be consistent, the Fed may tighten its easy money policies earlier than anticipated, or they could act more aggressively later to control the inflation rate. They have not specified what would define a sustained increase.
Rising prices, in some cases, are a result of shortages as seen in the microchip market. More broadly, prices are going up due to strong consumer demand now that the worst of the virus seems to be behind us. Real GDP was up 6.4 percent in Q1, and the second quarter is expected to grow at an 8.1 percent annual rate, which would mean the best year for the US economy since the early 1980’s.