US inflation expected to hit fastest pace in nearly 40 years

U.S. consumer price growth is expected to pick up at its fastest pace in nearly four decades in December, as the Federal Reserve worries about the threat of rising inflation and its consequences for the economy. economic recovery.

The Consumer Price Index (CPI) is estimated to have risen at 7% year-on-year last month, up a step from the 6.8% registered in November, according to a consensus forecast compiled by Bloomberg.

However, the monthly price increase is expected to slow to 0.4% in the November-December period, down from 0.8% in the previous period. The data will be released at 8:30 a.m. Eastern time on Wednesday.

“Core” inflation, which excludes volatile items like food and energy, is expected to rise even faster than the previous reading. Economists expect the core CPI to rise to 5.4%, much higher than the previous 4.9% annual rate. That led to another monthly gain of 0.5%.

The new data comes just a day after Jay Powell, Chairman of the US Federal Reserve, warned high inflation was a “serious threat“To revive the labor market and confirm the central bank’s intention to rapidly reduce its monetary policy support.

Senior officials have begun sketching out plans to raise interest rates from near zero as they achieve their dual goals of maximum employment and 2% average inflation over time.

December’s data is expected to show other signs that inflation is picking up in a broader range of the economy and is more at risk of becoming more entrenched.

Inflation readings for December are expected to put pressure on the Biden administration to manage the economy ahead of the 2022 midterm elections. While the US President has run a booming economy , which created more than 6 million jobs last year while the unemployment rate fell to 3.9%, perceptions of a strong recovery have been eroded by soaring prices and supply chain disruptions.

“This is clearly an area of ​​real challenge. . . A senior White House official told the FT. “While forecasts expect censorship [of inflation] Throughout the year, the president and administration are focused and trying to pull that forward as much as possible. ”

The White House has been trying to reduce congestion at key ports, crack down on anticompetitive practices in certain markets like the meat industry, and encourage more oil production globally to lower gas prices. oil. However, it has limited the application of other anti-inflationary measures, such as lifting tariffs on Chinese imports.

Coupled with the recent progress in the job market – with the unemployment rate plummeting below 4% and wages rising amid a near-record shortage of workers – economists are now looking forward The Fed will raise rates in March, with two or three more adjustments due later in the year.

The Fed has also signaled it’s ready to start decrease balance sheet size of $9 billion at some point in 2022 due to no longer reinvesting proceeds from maturing Treasuries and mortgage-backed securities.

The process, known as runaway, is likely to happen “earlier and faster” than the last time the central bank tried to trim its portfolio in 2017, Powell said on Thursday. Three.

No firm plan has yet been decided on when the balance sheet may begin to shrink and how quickly the Fed can proceed.

Raphael Bostic, president of the Atlanta Fed, on Tuesday speak he favors a balance sheet falling by at least $100 billion a month after the first expected rate hike in March. At least two more rate adjustments would be appropriate in 2022, he said.

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