US inflation at 40-year high

In May, consumer prices in the United States continued to escalate, hitting a new 40-year high, and US President Joe Biden called for more and faster to bring this high inflation under control.

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According to the Consumer Price Index (CPI) released by the Labor Department on Friday, consumer prices rose 8.6% year-on-year from 8.3% last month. The increase reached 1.0% over a month after +0.3% in April.

“We need to do more – and do it fast” to curb inflation, Joe Biden said in a statement, recalling that it was his “economic priority”.

Those numbers bode badly for Joe Biden just months before a crucial election date that will see a large chunk of the elected Congressman renewed.

“My administration will continue to do everything in its power to lower prices for the American people,” he promised, also urging Congress – the U.S. House of Representatives – to quickly pass legislation to prevent that Shipping companies exaggerate the prices.

Government, Congress, Central Bank: “We all have to do our part to bring down inflation,” he stressed.

He also attacked the American oil giants not to “use the difficulties created by the war in Ukraine as an opportunity to make the situation worse for families with excessive profit-taking or price increases”.

“Exxon made more money than God this quarter,” joked the US President after a speech at the port of Los Angeles (California), and again accused the tanker of not pumping more oil, which could push prices down, for the simple purpose of increasing profits.

The Republican opposition accuses the Democratic President’s economic policy of being inflationary: “In Joe Biden’s America, basic needs have prices of luxury items,” said Ronna McDaniel, President of the Republican National Committee (RNC).

Housing, petrol, plane tickets, groceries, new and used cars, but also medical care, clothing, the increase was general and dampened hopes of a sustained slowdown in inflation, which began tentatively in April.

“The higher inflation figures reflect an ongoing confluence of factors,” said Kathy Bostjancic, chief economist at Oxford Economics.

Supply difficulties that began with the Covid-19 pandemic have pushed up prices worldwide, a move compounded by a labor shortage in the United States, while generous government financial aid has stimulated demand.

The war in Ukraine has exacerbated the phenomenon, driving up gas and food prices.

Inflation compared to May 2021 is thus 34.6% for energy – the largest increase since September 2005 – and 10.1% for food – the largest increase since March 1981.

While Americans are highly dependent on their cars and often prefer gas-guzzling models, gasoline prices are breaking new records every day, averaging $4,986 a gallon (or 4.55 liters) on Friday, up from $3,073 a year ago (+62%).

According to data from the AAA Motorists Association, cited by the Washington Post, applications for fuel shortage assistance increased by a third in April.

However, excluding energy and food, the so-called core inflation remained stable at +0.6% over a month and even slowed down to +6.0% over a year.

This situation should convince the US Federal Reserve (Fed) to tighten interest rates further at next week’s Monetary Committee meeting.

The institution is on the move, its main lever being to dampen consumer and corporate demand by raising interest rates.

It has already raised it twice by a quarter point and then by half a percentage point to the 0.75% to 1.00% range.

The fight against inflation could weigh on the US economy and even stoke fears of a recession. Unemployment could rise again.

Gregory Daco, chief economist at EY-Parthenon, asks: “Do we have to fear stagflation?”, i.e. a prolonged period of low growth and high inflation: “No, not in 2022, but the risks will be much greater in 2023. ”

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