The economy of the United States is showing no signs of respite from inflation as prices of consumer goods rose unexpectedly in August.
Statistics released by Labour Department this week show an increase in consumer prices by 0.1%. This increase in consumer prices was unexpected as the price of oil and gasoline had started to cool off in the US Economy. Analysts and the market, in general, were not expecting a such increase.
A poll conducted by Reuters News Agency had shown consumer prices decreasing by 0.1%.
Data shows that gains from decreasing gasoline prices were offset by increasing food prices and rent. The cost of rent and food has been increasing in the US economy due to various economic and non-economic factors.
Consumer Price Index (CPI) increased by 8.3% in August when compared to 12 months ago. CPI in July was standing at 8.5%. Even though there has been a slight reduction in the consumer price index, it is highly insufficient when compared to the high-interest rate which was imposed to control inflation.
In July 2022, the consumer price index (CPI) touched 9.1% which was the highest inflation rate ever since 1981.
Increasing oil prices in the international market triggered an increase in prices for oil and essential commodities in the United States of America. An increase in oil prices coupled with increasing demand for other goods and services made things worse.
The global supply chain which was re-emerging from the economic impacts of covid 19 pandemic and lockdown was pushed to the ground by the Russian special military operation in Ukraine. The Russian invasion of Eastern countries resulted in a severe economic crisis in Europe and Asia.
United States Federal Reserve which is the central bank of the USA increased its interest rate by 75 basis points in June and July. This was the first interest rate hike after March 2022. The benchmark interest rates which were staying at zero before June is currently posted between 2.25% and 2.50%.
Increasing interest rates reduce the cash flow in the economy which in turn reduces high inflation rates. Even though the federal reserve and other central banks implemented aggressive monetary policies, inflation rates either stood at the same level or showed a very small reduction. The market is expecting the inflation rates to come down soon as oil prices in international markets have been decreasing for the past few days.
The Committee of the federal reserve which decides upon interest rates in the United States is scheduled to meet on Wednesday and Thursday to take policy decisions. Market and economic analysts are expecting a 75 basis point increase in the interest rates .
A few days ago, Jerome Powell, chief of the Federal Reserve, said that he and his colleagues at the Fed Reserve will continue utilizing all possible measures to bring down the inflation rate below the allowed level. According to Federal Reserve, the Inflation Rate should be 2% or less.
