We’ll start with the good news: The April data market saw a slight easing in the financial metric, posting an 8.3% jump from last year.
The bad news: Inflation is still near 40-year highs.
The map above shoes how inflation rates vary across the U.S. Food prices are up 9.4% versus a year ago, gasoline prices are up 43.6% and used cars and truck prices have jumped 22.7%.
Lowering inflation is President Joe Biden’s top priority, says U.S. Commerce Secretary Gina Raimondo (she spoke to journalists during the SABEW Conference on May 13).
“We know Americans are feeling the pinch due to inflation, and we are working on it every minute of every day, doing everything that we can in order to bring down prices,” she says.
Why is inflation so high? Raimondo points to a perfect storm of supply chain bottlenecks, monetary policy and labor market disruption due to COVID-19.
“Labor is a big issue,” she says. “We still have almost 2 million women who haven’t gone back to work, and we need to do a better job providing the supports for childcare and such, so they can go back to work. More labor supply brings down prices.”
In terms of logistical challenges, Raimondo says the U.S. does not have an official office within the Commerce Department exclusively devoted to supply chain monitoring and support.
“The United States has lost 25% of our small manufacturers in the past 25 years,” she says. “Germany, Japan and other countries in Europe have supply chain offices that provide loans and grants and technical assistance to small manufacturers, so they don’t go out of business. I think it’s high time to make it happen.”
The Future of Inflation
Longer term inflation expectations ticked higher in April, according to a survey released by the New York Fed, challenging the central bank’s efforts to bring price pressures down. Respondents to a poll by the New York Fed see inflation rising by 3.9% three years from now, up from a 3.7% rise they predicted in the March survey.
Newly confirmed Fed head Jerome Powell says on May 12 the Fed was prepared to act aggressively to bring down inflation to its 2% goal even if it created a short-term hit to the economy. He repeated his view that further half-percentage point increases would likely be appropriate at coming meetings but says the central bank could consider larger increases if economic data calls for such steps.
“Inflation is just way too high here in the United States,” Powell says. The central bank’s tools for taming that inflation are only focused on demand, and “supply is a big part of the story here.” There are additional factors such as the war in Ukraine and new lockdowns in China to limit the spread of COVID-19, so there is no guarantee “whether we can execute a soft landing or not ... it may actually depend on factors that we don’t control.”
