In March alone, consumer prices climbed 0.6%. That was more than expected, as well as the largest increase since August 2012.
Will higher inflation stick?
The question remains: The question remains: Is this a temporary sugar rush from the reopening of the economy, or the start of price hikes that could eat into corporate profits and persuade consumers to stop spending?
The jury is still out, but economists predict inflation will continue to heat up over the summer months, especially as people are starting to travel again.
Temporarily higher inflation was to be expected. An economy as large as America’s can’t just be turned off and on again without any such effects, some economists have noted.
But it’s important to note the context of the year-over-year comparisons: Prices pulled back significantly after the pandemic hit the United States in March 2020 and shutdowns began, making this year’s price increases look bigger.
And because of the historical comparison, inflation will seem to rise rapidly into mid-year and add to the narrative that the Fed isn’t seeing the inflation risk. But prices increases will moderate in the second half of the year as historical comparisons will be more favorable, said Action Economics’ chief economist Mike Englund.
“In our estimation it would be a mistake for policymakers, investors and firm managers to conclude that there is about to be a sustained and significant breakout higher in the overall level of prices that results in diminished consumer purchasing power and thinner profit margins over the medium to long term,” said Joseph Brusuelas, chief economist at RSM US, in a note to clients.
The Fed has repeatedly said that inflation would need to run above its target of around 2% for a while, and that other factors, including a recovery of the labor market, were also key to changes in monetary policy.
Source : CNN