32.9 C
Karachi
Thursday, March 28, 2024
- Advertisement -
 

Soaring prices push annual inflation in US to 40-year high

TOP NEWS

AFP
AFP
Agence France-Presse

WASHINGTON: The Federal Reserve is poised to unleash another massive interest rate increase this week after the latest data showed a worrying US inflation picture, which confirmed the need for the central bank to continue to act aggressively.

Soaring prices have pushed annual inflation to a 40-year high, inflicting pain on American consumers and businesses, despite the welcome drop in gasoline prices at the pump in recent weeks.

The disappointing consumer price report for August, showed housing, food and medical costs continued to rise. And when volatile food and energy prices are stripped out, core inflation accelerated.

Families have been struggling with rising prices sparked initially by high demand as the world’s largest economy emerged from the pandemic amid supply chain snarls. The situation has been exacerbated by Covid lockdowns in China and surging energy and food prices due to the war in Ukraine.

It is not just current high inflation that concerns policymakers, but the fear that consumers and businesses begin to expect rising prices will become a permanent feature, which could set off a dangerous spiral and a phenomenon called stagflation.

That fear has driven the Fed to front-load its rate hikes, rather than pursuing the more customary course of small, gradual steps over a longer period.

The US central bank has cranked up the benchmark lending rate four times this year, including two straight three-quarter-point hikes in June and July.

The aim is to raise the cost of borrowing and cool demand — and it is having an impact: home mortgage rates have now topped six percent for the first time since 2008.

A third massive increase is expected Wednesday at the conclusion of the Fed’s two-day policy meeting. And some people are raising the possibility the US central bank could take an even bigger step.

But concerns are rising that the aggressive action could tip the US economy into recession, which would reverberate around the globe.

“The sizzling-hot, core inflation figures that came out this week for August have upped the pressure on the Federal Reserve to raise rates a full percentage point instead of 0.75% at the upcoming meeting,” Diane Swonk, chief economist at KPMG US, said in an analysis.

“This will be one of the hardest and most politically charged of decisions. It marks the Federal Reserve’s first move toward an actual recession.”

Fed Chair Jerome Powell has made it clear that a recession is a risk he is willing to take. In fact, it is a risk the central bank must take to avoid an even more dire outcome: a repeat of the damaging, runaway inflation of the 1970s and early 1980s.

Powell’s predecessor from the last high-inflation era, Paul Volcker, had to take extreme measures after rising prices became entrenched, resurging and surpassing the peak of the mid-1970s after repeated failed efforts to tame them.

That led to a deep recession and unemployment over 10 percent.

- Advertisement -
- Advertisement -
 

POLL

Will the PML-N led govt be able to steer Pakistan out of economic crisis?

- Advertisement -
 

MORE STORIES