A third of the consumer price index is accounted for by rent
Inflation in the last month of 2021 was 7%, repeating the record 40 years ago. Democrats in the White House and in Congress are clearly uncomfortable with such records.
Even if highly volatile food and energy products are excluded from the index, price growth exceeded 5.5% in December. The hope that the global economy will quickly overcome the disruption to supply chains caused by the pandemic is not being realized. The supply system worked efficiently and smoothly during normal times, but it simply lacked spare capacity in the event of an unforeseen mass disaster, which was the covid epidemic. If such capacities were created, then by pre-docian standards, the costs of their creation could easily be criticized as a ridiculous waste of resources.
Of course, more and more new waves of coronavirus prevent manufacturers and transport organizations from reaching their design capacity again; there is an acute shortage of warehouse workers. China’s ongoing lockdown experiments don’t make things any easier either. And consumer demand, despite the rise in prices, continues its inexorable run; citizens, thanks to the generosity of those in power, accumulated cash surpluses. In combination, leading demand and lagging supply are the key to accelerating inflation.
According to authoritative forecasts, inflation will still not accelerate faster than 7 percent and will gradually fade, while even by the end of the year it is unlikely to drop to the target of 2 percent set by the Central Bank.
In December, as in the previous few months, inflation moved on a broad front, going beyond the sectors directly and painfully affected by covid: food, used cars, rent, restaurants. The labor force has risen in price, and businessmen need to somehow cover the increased costs.
Rent accounts for a third of the total value of the Consumer Price Index, which serves as a measure of inflation. An important factor influencing the dynamics of rents is the rate at which the state allows homeowners to depreciate the housing stock. In the coming year, apparently, they will be slower than in the previous one, but how much this will affect the growth of rent this time is an open question.
Prices for foodstuffs increased by 6.3% over the year, by 37.3% – for cars. Automakers are experiencing disruptions in the supply of computer chips from Asia, which is slowing down the release of new cars and, as a result, spurring demand for used cars. The cost of shipping from Asia to the US West Coast has increased by about ten times compared to 2019. At the same time, delivery times have almost doubled.
The Central Bank, in order to prevent inflationary trends from taking root, will begin to raise the key rate ahead of schedule and thus extinguish the rush demand. Moreover, this year the rate will be raised at least three times. The Wall Street consensus is all four. While the epidemic raged, the Central Bank kept its rate at almost zero in order to stimulate production and save jobs.
Democratic dissident Senator Joe Manchin cites inflation as the main reason for the reluctance to vote on President Biden’s colossal package of environmental and social initiatives.
News from the unemployment front looks much more optimistic, but neither Biden, nor the Democrats as a whole, can take credit for this, because they went out of their way to slow down the return of citizens to work. The effect of the White House’s decision to sell part of the strategic oil reserve on the market or to exhort the port authorities to urgently increase opening hours was minimal. Or even less.
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