The US Labor Department said Wednesday that consumer prices rose at the fastest pace in six months in February. Economists are forecasting core inflation of up to 2.5% in the spring, but argue that growth will be temporary.
The decline in US stocks, especially the Nasdaq, seen in recent weeks, has been replaced by gains amid expectations of a massive $ 1.9 trillion stimulus package that President Joe Biden will approve on Friday.
At the same time, many investors and market analysts are still afraid of a possible excessive rise in inflation, which may follow such a large inflow of budget money into the economy.
In addition, Fed Chairman Jerome Powell said earlier that the central bank would allow US inflation to exceed the 2% target until the labor market shows a full and comprehensive recovery.
A Labor Department report on Wednesday showed US inflation trends for February. Although the CPI rose and forecasts show even greater gains in the spring, economists provide reassuring explanations.
The U.S. consumer price index (CPI) rose 0.4% last month after rising 0.3% in January, resulting in the index rising 1.7% in the 12 months to February, the largest increase since February last year, after growing 1.4% in the 12 months to January 2021.
However, most of this increase in February was attributed to a sharp jump in gasoline prices, while food prices rose 0.2%.
However, if you look at the CPI, excluding volatile food and energy prices, the index rose just 0.1% after staying flat for two consecutive months.
Inflation growth in the USA in 2021
A poll by the American Automobile Association (AAA) showed that the national average gasoline price reached $ 2.77 a gallon (3.785 liters) in February, up $ 0.31 from January. The association predicts that fuel prices may rise to around $ 2.90 this spring, which will be reflected in the CPI.
Atlanta Fed reports on Wednesday also showed that annual enterprise inflation expectations jumped from 2.2% in February to 2.4% in March.
Kathy Bostjancic, chief financial economist at Oxford Economics in the US, expects core inflation to rise to 2.5% in 12 months this spring.
At the same time, the Oxford Economics economist echoed Powell’s view that while prices are likely to rebound in the coming months as the country’s economy continues to recover, this growth should be temporary and not a sign that inflation is spiraling out of control.
“We share the Fed’s view that growth will be temporary and will not represent the beginning of an upward spiral,” Bostjancic said in her research note.
Regarding data on prices for other categories of consumer spending in the United States, the Labor Department report showed that growth in some categories was offset by lower prices in others. For example, prices for medical care rose 0.3%, while the average rental price for residential real estate rose 0.3% after rising 0.1% in January.
However, in a number of other areas, prices declined, namely: clothing prices fell 0.7% in February after three consecutive monthly increases, used car prices fell 0.9%, and new car prices remained unchanged after falling in January. Airfare fell 5.1% and hotel room prices fell 2.3%, as the tourism industry continues to face severe crisis due to the pandemic.
At the same time, estimates and forecasts of large organizations regarding the growth of the US economy have improved from three months earlier.
Earlier this week, the Organization for Economic Co-operation and Development (OECD) said massive vaccine rollouts and a boost to the US economy are improving the prospects for a growth recovery. The OECD raised its forecasts from December expectations for US GDP growth of 3.2% in 2021 and 3.5% in 2022, to growth of 6.5% this year and 4.0% the next.
The benefit for the economy will be achieved through a temporary rise in inflation. The OECD estimates the $ 1.9 trillion package. could lead to the creation of up to three million US jobs by the end of the year, but could also increase inflation by an average of 0.75 percentage points per year in the first two years.