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HOW IS WORLD’S GREATEST ECONOMY KEEPING UP WITH INFLATION?

Increased prices of gas, food, and rent gave rise to US inflation further adding on pressure households with increased interests rate.   

HOW IS WORLD’S GREATEST ECONOMY KEEPING UP WITH INFLATION?

INFLATION DATA

According, to the reports submitted by the Labor Department, consumer prices soured 8.6% in May and with 1.3% rise they were 9.1% in June, being a new and shocking record in four decades. Down to 8.5% in july and a further downfall to 8.3% in August.  Though, the numbers still remain high and shocking!

HOW IS WORLD’S GREATEST ECONOMY KEEPING UP WITH INFLATION?

CONSUMER PRICE INDEX (CPI)

The core CPI which excludes energy and food prices, rose to 6.3% in August from a year earlier, which is markedly from the 5.9% rate in both June and July. It rose 0.6% in August—double July’s pace.  investors and policymakers closely inspect core inflation to predict future broad inflation.

CONTRIBUTION TO INFLATION

According to Bureau of Economic Analysis (BEA) there are three main components:

  • Durable goods (e.g., long-lasting products such as household items and motor vehicles)
  • Nondurable goods (e.g., clothes and gasoline)
  • Services (e.g., health care and housing expenditures)
HOW IS WORLD’S GREATEST ECONOMY KEEPING UP WITH INFLATION?

     Evidently, the inflation contributions for all three major components are much higher for the current inflation rate compared with those of previous expansion period. The increase in inflation of durable goods increased significantly with a share of 13% of total consumptions. It went from                      –0.19%   to 1.51% at the beginning of this year. The inflation rate of non-durable increased to 7.2%, with a share of 22% share of overall PCE it contributes to 1.57% to overall inflation rate.

OIL PRODUCTON AND INFLATION

In, US domestic oil production increased significantly and even reached its peak in 2019. This increase suppressed the inflation rate of energy prices during the previous expansion. But during the pandemic era the oil production rates declined significantly and has not got back to its initial levels being one of the prominent reasons of inflation. The gas prices fell from $5 a gallon to $4.66 a gallon.

HOUSING SERVICE INFLATION

Although, the housing service rates have not been very significantly affected but the trends might invite future trouble. The increase housing prices being the indicator of the same. As the housing prices go up, landlords will charge higher rents to compensate.

HOW IS WORLD’S GREATEST ECONOMY KEEPING UP WITH INFLATION?

The housing services constitute 18% of total consumption expenditures, which means the impact of housing service will be significant on overall PCE inflation.

In brief the price surge in durable and non-durable goods  affects overall PCE inflation rate significantly.

HOW IS INFLATION RATE HITING US CITIZENS?

HOW IS WORLD’S GREATEST ECONOMY KEEPING UP WITH INFLATION?

Prices climbed because of a few interrelated factors, including high consumer demands and supply chain disruptions. The gross domestic product of US greatly shrank according to the commerce department.

Although, the overall market remained strong by adding 315,000 jobs in August itself. There were great number of resigns Ford Motor Co., T-Mobile US Inc. and Wayfair Inc., while the unemployment rate edged up but remained low at 3.7% . The increase in competition of workers increased the wages. But the adjustment for inflation led to a decline of 0.1%

Demand and supply chain disruptions have seen moderations because of lower consumer demand and slow increase in prices of goods.

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