The rush of US inflation continues to surprise even economists, who weren’t expecting such a strong rally in January. Instead the consumer price index last month increased by 7.5%, compared to 7% in December. AND’ the highest value recorded since February 1982. Analysts expected the cost of living to stop at 7.3% in January.
The price index has remained above 5% for eight months in a row and this further increases the pressure on the Federal Reserve, the American central bank, to intervene more aggressively on interest rates, which were left unchanged at zero in the last monetary policy meeting. The first tweak on the cost of money expected as early as March and, at this point, could be higher than expected, up to half a percentage point in one fell swoop, for the first time since 2000.
Government bonds in tension
The first consequence was a sudden rise in de10-year US government bond yields, above the 2% threshold for the first time since August 2019. The figure at the close of the US markets on Thursday was 2.02% from 1.927% on Wednesday. At the end of 2021, the 10-year Treasury yield was 1.51%. Wall Street is also negative: the Dow Jones lost 1.47%, the Nasdaq 2.10% and the S&P 500 1.81%. But the tension on government bonds also spread to Europe, where the spread between the ten-year BTP and the similar German Bund widened up to 160 points, while the yield rose to 1.887%.
The boost of energy, food and rentals
According to data released Thursday by the Bureau of Labor Statitstics, the monthly increase, seasonally adjusted, in January was 0.6%. But core inflation also risesthat is, the one calculated excluding food and energy products, even at + 0.6% on a monthly basis and + 6% on an annual basiscompared to 5.5% recorded in December.
Not only energy is driving inflation. Used car prices, for example, rose 40.5% in January on an annual basis. But above all they rise rents, the price of furniture and food, the three items that had the greatest impact on the rise in inflation. Food prices rose by 7% in January, the largest rise since 1981. Energy overall increased by 27%, less than the peak reached in November (+ 33.3%), as the rise was partially offset by the drop in petrol (-0.8% in January but still up by 40% compared to a year ago) and natural gas (+ 23.9%, i.e. 0.5% less than in December) but still at much higher levels than in previous years. Only the indices of mobile telephone services and home hospitality decreased in January, while that of the sale of new cars remained unchanged.
And the Fed opens half a point higher
After the inflation report, the Casa Bianca did it know that appropriate for the Fed to recalibrate support for the economy. Although the US president, Joe Biden continues to believe in a substantial reduction in inflation by the end of 2022despite the current level being high.
To cope with the surge in inflation, which hit a 40-year record, St. Louis Fed Chairman James Bullard opens on the first half-point rate hike. This would only be the first step, to then raise interest rates by 100 points by 1 July, the central banker explained to the agency. Bloomberg.