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The Core Personal Consumption Expenditures Price Index (PCE), the inflation gauge most closely watched by the U.S. Federal Reserve, rose 0.5 percent in January after adding the same amount in December.
The PCE stood at a 5.2-percent annual rate at the end of January, up from 4.9 percent the month before and its fastest gain since April 1983, The Wall Street Journal noted.
The PCE excludes food and energy prices, which are volatile. Factoring those into the index, the PCE grew at a 6.1-percent annual clip in the first month of this year, up 0.6 percent from December.
Producer prices leaped 9.7 percent in January, year on year.
Brent crude’s price broke through $100 after Russia invaded Ukraine and benchmark Dutch natural gas futures skyrocketed 62 percent last week. Europe imports almost 40 percent of its natural gas from Russia (see related story in this issue).
The U.S. labor department’s Consumer Price Index, which measures different sources of spending than the PCE, swelled by 7.5 percent in January.
The Consumer Price Index estimates what an urban household pays for a standard assortment of basic goods and services; the PCE includes estimates for rural households and also expenses by organizations spending on behalf of households, such as employers paying for workers’ health insurance.
While prices rose in January, personal incomes were flat but household spending rose 2.1 percent (see related story in this issue).
Relentless inflation is putting more pressure on the U.S. Federal Reserve to raise interest rates faster and more sharply to rein in prices, however, as we note, with the Ukraine war heating up, a trend that was unforeseen just a month ago, rising interest rate pressures may well ease (see related articles in this issue including “War in Ukraine Economic Overview”.
The Fed wants “to balance the risk of a stagflationary environment where you have higher inflation and slower growth versus the risk of a situation where they move too early,” Gregory Daco, chief economist at E-Y Parthenon, told the FT.
The Fed will boost rates six times in 2022, Daco predicted, then pause at the end of this year to “re-evaluate and reassess” the need for additional increases.
TREND FORECAST: How can anyone with a brain bigger than a pea believe the Bankster Bandits?
Go back to last year at this time when inflation was spiking. They were either too stupid to see the strength and depth of inflation or they were lying that interest rates were “temporary.”
Back then, in our “Fed: Stronger Economy, Steady Rates” (23 Mar 2021), we noted that at the beginning of 2021, the 18 Fed officials on its policy-setting committee saw that the central bank would only start increasing interest rates in 2024.
By March, seven of the 18 were thinking a rate hike might be needed in 2023 and only four were ready to boost rates in 2022.
The Fed’s nature is to artificially boost the economy and enrich the Wall Street White Shoe Boys at any cost. Now, under severe inflationary pressure to raise rates and hinting that they would finally take bolder action, the unforeseen Ukraine War may well have the Fed’s raising rates only .25 percent following their mid-March meeting.
TREND FORECAST: The U.S. economy already was at risk not just for stagflation but for “Dragflation,” one of our Top 2022 Trends, a syndrome in which economic productivity shrinks while costs rise.
The war in Ukraine, even if short, will reverberate through the global economy for a longer time. Oil and gas prices will remain high for the duration and after as strategic reserves are replenished.
Supplies of key materials out of Russia and Ukraine will take time to build back to normal volumes and replace stores depleted during the conflict. Financial relationships will need to be reconfigured.
The world is poised to enter a period of even stronger inflation, leading to global dragflation.