WHY INFLATION IS SO HIGH IN THE US

 Inflation skyrocketing in the US

WASHINGTON — Last year was a nasty surprise. And it was supposed to be temporary. But now inflation has become a financial burden for millions of Americans when it comes to filling up gas, paying for groceries, buying clothes, negotiating a car or paying rent.

During the last 12 months ending in January, inflation rose to 7.5%, its fastest annual growth since 1982, the Labor Department reported Thursday. Even if you don't factor in volatile food and electricity prices, so-called core inflation soared 6% over the past year. It was also the sharpest increase in four decades.

Consumers felt rising prices in all aspects of daily life. In the last year, the price of used cars and trucks increased 41%, gasoline 40%, bacon 18%, bedroom furniture 14% and women's dresses 11%

The Federal Reserve did not anticipate such a severe or persistent wave of inflation. In December 2020, the Fed had forecast that consumer inflation would remain below the 2% annual target and end 2021 at about 1.8%.

But after going virtually unnoticed for decades, high inflation resurfaced this year at breakneck speed. In February 2021, the government's consumer price index was just 1.7% above its level a year earlier. From then on, year-on-year price increases steadily accelerated: 2.7% in March, 4.2% in April, 4.9% in May, 5.3% in June.For October, the figure was 6.2%, for November it was 6.8% and in December it reached 7.1%.

For months, Fed Chairman Jerome Powell and other officials have described higher consumer prices as merely a "transitional" problem, a result mainly attributable to delayed shipments and temporary supply and labor shortages in a At a time when the economy was recovering from the recession caused by the pandemic at a faster rate than anyone had anticipated.

Now, many economists expect consumer inflation to remain high for much of the year, with demand outstripping supply in various areas of the economy.

Inflation remains the economy's biggest short-term challenge,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. "Although price pressure is expected to ease as the year progresses, inflation will remain above the Fed's 2% target for some time."

So the Federal Reserve has radically changed its strategy. Last month, the central bank signaled that it will begin a series of increases in its interest rates starting in March. In doing this, the Fed distances itself from the extremely low rates that helped revive the economy after the devastating recession that the pandemic caused, but have also contributed to the rise in consumer prices.