INFLATION RISES AT HIGEST RATE SINCE 2008; CORE INFLATION HIGHEST SINCE 1982; HIGH INFLATION AND WEAKER JOB GROWTH HAS ANALYSTS NOW FEARING “STAGFLATION”
by Kevin Ryan
The Consumer Price Index (CPI) rose 0.8% in April, bringing the level 4.2% higher than a year ago, the largest increase since 2008. The increase was much higher than analysts and the Fed had expected.
“I was surprised,” Federal Reserve Vice Chairman Richard Clarida said in an interview shortly following the release.
Core inflation (which excludes energy and food) was even more surprising, growing at 0.9% in one month, the highest increase since April, 1982.
The number follows an April jobs report last week that was so bad, people called it “the worst miss ever”. Just 266,000 jobs were added in the month, far worse than the 1,000,000 that had been expected.
The weak job growth and high inflation has some analysts starting to worry about “stagflation,” something not seen since the days of Jimmy Carter.
Reuters: “The collision of higher inflation and weaker job growth has echoes of the damaging ‘stagflation’ of the 1970s, and would be the worst of both worlds for a central bank charged with maintaining both high levels of employment and stable prices.”
The problem for the Fed will be how to rein in inflation without worsening the jobs picture. Normally the Fed increases rates to cool down inflation when the economy overheats. But doing so can also slow the economy and hurt job growth.
Nevertheless, the higher-than-expected inflation has the Fed now openly discussing rate hikes. If today’s data “isn’t transitory,” Vice Chair Clarida says, the Fed “will use our tools to bring inflation under control”.
That could further slow the recovery, which Clarida points out will need to grow at 500,000 jobs per month until Fall 2022 just to return to Trump-level highs.
“It may take longer to reopen the economy than it did to shut it down,” Clarida now says.
SOURCES:
https://www.bls.gov/news.release/cpi.nr0.htm
https://www.reuters.com/article/usa-fed-...wXnr4qOtk3