US consumer prices rose 4.2% in April – the fastest since the 2008 crash – as the economy recovered from COVID
Inflation has started all over America and is rising, with consumer prices up 4.2 percent since April last year, the highest since the months leading up to the 2008 global crash as the economy plunges into recovery mode after a COVID-19 catastrophe.
The consumer price index, which examines the prices of everyday items such as food, energy and cars, rose 4.2 percent. Energy prices, which were volatile, rose by 25 percent. Even when energy prices are taken out of the index – something economists are doing to get a better picture of what they call the ‘core’ CPI – they were up 3 percent. Experts had predicted a sharp increase, but not one of this magnitude.
It is the largest price increase since just before the economic crash of 2008, when the CPI – generally considered the inflation rate – was 5.8 percent.
After the banks collapsed in September 2008, the world entered a severe recession and the CPI fell to -1 percent in 2009. It has taken years to recover.
Some say it will settle down again in the fall, while others predict this is the start of a more intense peak.
Many urge caution and point out that while it is a massive increase from April 2020, it is not a massive increase from February and March 2020. Last April, prices took a nosedive as the world shut down.
While the price of everyday items has gone up 4 percent since March, it’s only gone up 2 percent since February 2020.
The immediate reality is that life in America has become more expensive as the economy tries to recover from the devastating losses of the past 15 months.
This is how US inflation fell and rose during the pandemic. Wednesday’s figure shows a huge jump. Some economists say it’s nothing to fear and is just a sign of recovery from devastating losses. Others warn that if it continues to rise, the economy could overheat and force the fed-up to raise interest rates
This is how the CPI – which measures the cost of everyday items – has changed over the past 20 years. The Fed likes to keep it around 2 percent, where it floated the most. The current figure of 4.2 percent is the highest since just before the financial crash of 2008. At that time, inflation was almost 6% because borrowing was cheap and spending got out of hand. Then it crashed. In 2020 it has fallen dramatically. Wednesday’s 4.2% reflects the economy recovering from it, but it is also concerned that this signals an impending crisis
This is how the prices of bread (yellow), gas (dark blue), beef (light blue) and milk (red) have fallen and increased over the past 20 years
The price increase is caused by a combination of factors; companies have to raise their prices to survive.
That’s because of a number of things and one of them is that they have to pay higher wages to workers who can currently claim generous unemployment benefits because they are not working.
Another is that they have to make up for the devastating losses they have suffered from months of shutdowns.
A third is the persistent and persistent demand for goods – people are willing to pay more for things they used to pay less for. The cost of a gallon when milk is $ 3.45 – 40 cents more than March last year.
A pound of ground beef is now $ 4.29. That’s less than April last year when the country’s meat supply was threatened by COVID outbreaks in meat packing plants and it rose to $ 5.33, but it’s still more than the $ 4.03 it cost in February 2020 .
A white bread costs $ 1.51, compared to $ 1.38 in February 2020.
Energy prices rose the most – by 25 percent.
That’s due to the sudden drop in crude oil prices that happened last April, when crude oil prices hit negative (below $ 0) for the first time in history.
It was due to a sudden drop in demand caused by stay-at-home orders, which meant people didn’t need it.
Wednesday’s data from the Bureau of Labor Statistics is piling up to an escalating economic situation caused by COVID and the decisions the government has taken in response.
There are 9 million people out of work – the unemployment rate is 6 percent – but people can earn more from government benefits than if they had a paid job of $ 32,000 a year.
Major industries such as tourism and aviation remain severely constrained due to government blockage and businesses are trying to get back on their feet.
OVERHEATING: WHAT HAPPENS WHEN AN ECONOMY RESTarts TOO FAST
When an economy recovers too quickly and prices are higher than how much people earn, it is known as ‘overheating’.
It normally drives the Federal Reserve to raise interest rates to keep people from spending so much – if it’s more expensive to borrow money, less money.
But in this case, the Fed has said it will not raise interest rates while so many people remain unemployed.
That means prices can keep going up without anyone trying to keep them in check, while revenues remain the same.
That imbalance paralyzes the middle class and the working class.
Whether the U.S. economy is currently overheating is the subject of intense debate.
Many typical Biden supporters say this is not the case and that this is just a reaction to make up for last year’s losses.
Others, including Warren Buffet, warn that it is a sign of danger and that if something is not done now to weaken stimulus, boost employment and cut demand, the country could take a dangerous path.
Federal Reserve Chairman Jerome Powell has insisted that he can control inflation and that any increase will be temporary. Economists on both ends of the political spectrum are already predicting the most painful inflation in decades.
The Fed has kept its foot on the ground when it comes to supporting the economy: last week it left interest rates at zero.
This keeps money ‘cheap’, making it easier for banks to lend to each other and to companies.
Some say it keeps money too cheap and makes the economy too warm.
Bank of Montreal economists acknowledged that the Federal Reserve, in charge of controlling inflation, has said the inflation bump will be “transient” – or pass.
“Well, but an earthquake is also transient,” she said in a recent note to customers. “If you’re hot, you risk burns.”
Billionaire Warren Buffett said last month that the economy was ‘off the hook’, noting that the stimulus passed by Congress and distributed by the Fed put most of the economy into a ‘super high gear’.
Still, Buffett warned that he did indeed see “substantial inflation” within his conglomerate of companies, saying, “We’re raising prices. People are raising prices for us and it is accepted. ‘
The average American should be concerned about inflation because it affects the value of his dollar: for every tap that goes up, his dollar gets less worse.
Some inflation is good – everyone wants a higher salary, for example – but if it rises too quickly, the salary increases will not keep up with the increases.
And if inflation gets out of hand – if it rises much faster than the 2 percent level set by the Federal Reserve as a general target – it could cause economic problems – even a recession.
Larry Summers, one of Obama’s chief economic advisers, wrote on the topic last month.
He warned, “ While there are huge uncertainties, there is a chance that macroeconomic stimulus measures on a scale closer to World War II levels than normal recession levels will create inflationary pressures of a kind that we will not see in a generation. have seen implications for the dollar’s value and financial stability, ”in an article for The Washington Post.