WASHINGTON – Inflation has hit new highs in the United States and Europe as rising energy prices and supply constraints halted economic recovery from the pandemic in both economies.
The US Commerce Department reported Friday that prices rose 4.3% in August from a year earlier. While only slightly higher than the previous month, it was still the largest annual increase since 1990. Energy costs have increased by about 25% over the past year, while a supply backlog has driven up the prices of cars, furniture and appliances.
In the 19 countries that use the euro, inflation rose to 3.4% in September, up from 3% in August, statistics agency Eurostat said on Friday. This is the highest since 2008. Energy prices have risen 17% over the past year, led by natural gas and electricity.
Such price gains could reduce workers’ purchasing power and complicate President Joe Biden’s ambitious spending plans, as well as increase pressure on central bank leaders in the US and Europe.
The Commerce Department reported on Friday that US consumer spending rose 0.8% in August despite a jump in COVID-19 cases, after falling 0.1% in July. This suggests that ongoing hiring, rising wages and government payments such as the new child care tax credit are costing more and could boost the economy in the months ahead.
Americans bought more furniture, clothing and groceries in August, though the Delta version pulled back on traveling and eating out. Yet the government revised spending very little in July, down 0.1% from a 0.3% gain. As a result, several economists slashed their forecast for growth in the July-September quarter to a steady 3% annualized rate, down from 6.7% in the April-June quarter.
US consumer prices rose 0.4% in July to August, similar to the previous month, providing evidence that price growth has not slowed as far as economists had hoped. Excluding volatile food and energy categories, core inflation rose 0.3% in August and 3.6% from a year ago, the same figures for the previous month.
Supply shortages for everything from computer chips to furniture to paints and chemicals have driven up prices, with the economic rebound from the pandemic-fueled slowdown leaving many companies flat-footed.
Higher costs have heightened Americans’ concerns about their financial futures and eroded their confidence in the economy, according to the University of Michigan’s monthly consumer sentiment survey, released Friday. The survey found consumers were slightly more optimistic about the economy in September than the previous month, but much less than in April, when so many believed the pandemic would end sooner with vaccines. Will go
The Michigan survey found that just 30% of American households are expected to do well financially from now on, the lowest level since August 2016.
Federal Reserve Chairman Jerome Powell said Thursday that jammed ports on the West Coast, factory closures in Asia amid COVID-19 spikes and other disruptions in global supply chains lasted longer than expected. Keeping prices stable is one of the Fed’s mandates, as well as seeking maximum employment.
Still, Powell said he expects the series to start improving next year, which could ease inflation in the first half of 2022.
Some members of Congress – mostly Republicans – have attributed the sharp rise in US inflation since this spring to a large increase in government spending, including nearly $5 trillion in financial aid provided by former President Donald Trump and last March. Includes approved Biden’s $1.9 trillion aid package.
Joe Manchin, a Democrat from West Virginia, has cited high inflation as a reason for his opposition to Biden’s proposed $3.5 trillion legislation that would spend more on health, education and the environment.
European Central Bank President Christine Lagarde said on Wednesday that as of now, there is no indication that recent price increases have pushed European workers to increasingly higher wages, which will then prompt companies to raise prices and push inflation. may be forced to increase.
“We certainly have no reason to believe that these price increases that we are seeing now will not be largely transitory,” Lagarde said.
The European Central Bank has predicted inflation will decline next year, and Lagarde has previously said it will not “overreact” by reducing its support for the economy to combat temporary inflation. The central bank forecasts inflation of only 1.7% next year and 1.5% in 2023, well below the bank’s target of 2% which is considered best for the economy.
Still, economists claim that European inflation will be temporary, with the extremely tight market for natural gas causing price hikes this winter and fears of a gas shortage haven’t allayed.
Natural gas in Europe was trading at 94.46 euros ($109.36) per megawatt on Friday, nearly five times higher than at the beginning of this year. Reasons include strong demand in Asia, short supply from Russia and cold weather last winter that have depleted reserves.
High prices of natural gas and electricity have sparked concern among European governments, which are taking steps to limit the increase in residential utility bills through subsidies and tax cuts. Natural gas is a major fuel for generating electricity, so higher gas prices mean higher electricity bills.
McHugh reported from Frankfurt, Germany.