Inflation shoots up to 7% in the United States and increases pressure on the Federal Reserve to raise rates

Prices continued to rise in December in the United States, when they reached 7%, a level never seen since June 1982, almost four decades ago.

The data reinforces expectations that the Federal Reserve will start raising interest rates in March.

Inflation rose in monthly terms by 0.5%, after the increase of 0.8% in November, according to government figures.

Economists consulted by Reuters forecast a monthly increase of 0.4% and 7% in year-on-year terms. The economy is experiencing a high rate of inflation after the pandemic disrupted supply chains. The high cost of living is influencing approval ratings for President Joe Biden. Inflation is well above the 2% target the Federal Reserve is targeting, and it is being fueled by pressure to raise wages.

The good performance of the economy also invites a reversal of the stimuli. The Government announced last Friday that the unemployment rate fell to 3.9% in December, its lowest level in the last 22 months, which suggests that the labor market has reached, or is approaching, full levels. job. Federal Reserve Chairman Jerome Powell said Tuesday in the Senate that the body he leads is ready to do whatever it takes to prevent high inflation from "taking hold."

"The long list of reasons the Fed is starting to phase out monetary policy expansion is growing," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania. "Inflation would have to decelerate quickly to take some of the pressure off the Fed and this is unlikely to happen," he adds. Financial markets currently give an 85% chance of an interest rate hike for March, and estimate that there will be at least three quarter-point hikes by the end of the year.

Economists believe that the year-on-year CPI rate likely peaked in December or will likely peak before March at the latest. There are signs that supply bottlenecks are beginning to diminish. A survey by the Institute of Supply Management last week showed that manufacturers saw an improvement in supplier deliveries in December. But the skyrocketing number of COVID-19 cases, driven by the Omicron variant, could delay progress toward normalizing supply chains.

Excluding volatile food and energy components, the CPI rose 0.6% last month after rising 0.5% in November. In the 12 months to December, so-called core inflation accelerated 5.5%. This is the highest year-on-year gain since February 1991 and followed a 4.9% advance in November. Core inflation is being driven by rising prices for services such as rents, as well as shortage of components for the manufacture of motor vehicles. The annual core CPI rate is expected to peak in February. “In the first quarter you should see the peak of inflation, with lower energy prices and a decrease in inflation of food and cars,which would allow for a slower rise in prices during the rest of the year, ”estimates David Kelly, chief global strategist at JPMorgan Funds in New York.