An inflation rate of 4.2 percent shocks investors and weighs on consumers. In Germany, heating oil and gasoline are more than 20 percent more expensive.
EA jump in the monthly inflation rate in the US has frightened the financial markets, baffled professionals and caused the White House to communicate more comfortably. The rate of increase for consumer goods (CPI) was 4.2 percent in April compared to the same month last year. That was the highest price increase since September 2008. Compared to March, the increase was 0.8 percent. Without the volatile prices for food and energy, prices rose by as much as 0.9 percent in April. According to official information, this is the highest monthly price jump in almost 40 years.
It was almost three times as big as market observers had predicted. Almost all of the important goods that make up the price index for consumer goods in cities rose in price in April. The biggest price jump was made by used cars, which were 10 percent more expensive in April than in March. The statisticians of the US Department of Labor have not yet recorded such an increase in used cars within a month since the price evaluation began in 1953.
Price slide continues
On the financial markets, the price slide that had started the day before continued on Wednesday after the publication of the inflation figures. Investors apparently fear that inflation data could induce the central bank to raise key interest rates. Richard Clarida, Vice Chairman of the Central Bank, reaffirmed the Fed’s position in a speech on Wednesday: He does expect the inflation rate to exceed the target of 2 percent in the next few months. According to Clarida, however, temporary phenomena are expressed in this.
Some price jumps, especially in the service sector, had a particularly large effect because they are compared with the crisis prices of the previous year. Temporary production problems are another factor; according to Clarida, they do not change the Fed’s expectation that inflation will level off at just under 2 percent or just above in the next two years. The Fed would not intervene at this level.
Economists give two reasons for the price jump
For the White House, the inflation report was the second negative surprise in a few days. The monthly unemployment statistics reported last Friday had exposed most of the estimates as false prognoses. Instead of the expected up to one million new jobs, only around 270,000 were created, which led to a slight increase in the unemployment rate to 6.1 percent. President Joe Biden’s economics team has been made aware of the fact that well-known critics from within their own camp have conjured inflation risks because of the large rescue package, which was pushed through with a democratic majority.
The economists named two reasons for the price jump. Because prices were pushed down by the crisis last year, the price increases are particularly high in percentage terms. The absolute prices for plane tickets or hotel accommodation, which had risen by more than 10 percent in April, are still below the pre-crisis level.
According to the White House, the second factor is temporary problems in the production chain, which are particularly evident in the automotive market. Because microchips are in short supply, manufacturers cannot keep up with production. Buyers fall back on used cars, which have become dramatically more expensive. The price effect of this sector alone explains a third of the April inflation rate. Eating out has also become significantly more expensive with a plus of 3.8 percent within a year. In spite of the crisis, prices did not fall here; the development evidently reflects rising wage costs. It is therefore not temporary.
In Germany, the inflation rate was 2 percent in April – that was the highest level in two years. The Federal Statistical Office has now given details. Energy prices rose by 7.9 percent over the year. Heating oil went up by 21.1 percent and fuel by 23.3 percent – both are exceptional. The new CO2 price in Germany also played a role, but also a so-called base effect: oil was extremely cheap due to the crisis last year, which has resulted in high price increases year-on-year. Food prices rose by 1.9 percent, and consumers had to pay 6.1 percent more to visit the hairdresser. Prices for Corona home gardening also rose: flowers and other plants were 7.5 percent more expensive.