Breezy Explainer: Why is the Inflation in the US at a 40-year-high?

Inflation in the US is surging to its highest in almost four decades and wreaking havoc on regular consumers. Read to find out why it is so.

What is the reason behind US’ inflation rate?

The increasing inflation rates are the reason behind sleepless nights for American consumers as it is wiping out pay raises. The development is also reinforcing the Federal Reserve’s decision of raising borrowing rates. On Thursday, the Labor Department revealed that consumer prices spiked by 7.5 percent in January 2021 compared to last year. The spike is the steepest year-over-year increase since 1982.

Additionally, the inflation in the US between December and January was 0.6 percent. The prices have been rising by an average of 0.8 percent between September to November 2021. According to experts, the rise in inflation last year was triggered by a shortage of workers and supplies. Additionally, they believe that ultra-low interest rates, robust consumer spending, and a heavy dose of federal aid were playing a huge role.

More about the rise in commodities

Americal consumers are also experiencing a squeeze in their everyday life. Over the last year, prices for used vehicles increased by 41 percent while fuel prices saw a 40 percent raise. The rise in gasoline prices also affected the rise in clothing and food. The rise in bacon prices was 18 percent and that of women’s clothing was 11 percent.

Economists also believe that Feds may raise the key rate in March for tackling the issue. However, it can be a 0.5 percentage point hike instead of a typical 0.25 point raise. After all, the Federal Reserve of the nation did not anticipate such a persistent rise. In December 2020, their policymakers were forecasting inflation below 2 percent annually. However, the current situation has been an economic afterthought for a long time. Experts believe that consumer inflation will stay elevated this year as the demand for supplies is rising.

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