Millions of Americans are living on the edge amid historically high inflation at the grocery store and petrol pump, but economists Al Jazeera spoke with say there is reason for hope – even if the trend is still moving in the wrong direction.
The consumer price index (CPI), a gauge of inflation, jumped 9.1 percent in June from a year earlier – the largest gain since 1981. All eyes are now on the Federal Reserve as it meets on Tuesday to discuss monetary policy: Can the United States’s central bank raise interest rates and increase the cost of capital in order to reduce demand, boost supply, and moderate prices without plunging the economy into a deep recession?
“We are really in uncharted territory,” Brent Meyer, policy adviser and economist at Atlanta’s Federal Reserve, told Al Jazeera. “The size of the shocks that have buffeted the economy and the speed and suddenness with which things have changed has put us in a place where it’s very challenging from a monetary policy standpoint.”
Following its meeting next week, the Fed is expected to raise interest rates by three-quarters of a point. But will it be enough to ease price pressures?
According to a recent Pew Research Center survey, three-quarters of Americans say they are “very concerned” about the rising prices. The cost of energy has jumped 41.6 percent in the last year while groceries increased by 12.2 percent.
So why is US inflation soaring, and will food and fuel prices cool anytime soon? And why do some experts foresee a recession yet have reasons for optimism? Here’s what you need to know:
1. The US is ‘still suffering’ from a couple of shocks so it’s unlikely prices will cool soon
During the coronavirus pandemic, the Fed allowed interest rates to drop to nearly zero as the economy came to a complete halt. Businesses shuttered and millions of workers were left unemployed. To aid companies and individuals in adjusting to the economic shock, the US government also spent trillions of dollars in stimulus measures.
But as there were few places to go and spend money, millions of Americans watched their savings pile up. And as the US economy began to reopen, demand for products and services surged. Americans who had been under lockdown went out to eat, shop, and travel. Repressed demand and unresolved supply chain issues sent prices higher. Then, the war in Ukraine once more jolted the world economy. The cost of commodities like oil rocketed.
“We are still suffering…