Inflation climbs again

The backstory:

• When the pandemic hit nearly three years ago, economies around the world shut down while policymakers and governments came together to figure out how to keep things moving while millions were in lockdown.

• In the United States, the answer was to pump US$6 trillion into the economy in COVID-19 relief, after the economy contracted 3.4% in 2020, the biggest drop in the gross domestic product (GDP) in 74 years.

• With this stimulus plan and people becoming more accustomed to living with the virus, the US quickly rebounded, with bored lockdown people pouring money into buying physical goods, meme stocks and cryptocurrencies. Bitcoin hit record highs, and businesses, which weren’t ready for all this demand, struggled to produce goods and fulfill orders.

• With that struggle to produce goods and COVID-19 still disrupting a lot of things in countries that supply components and goods to the US, inflation hit record highs at around 7% (the aim is around 2-3%).

• This is while interest rates remain close to zero, and the US economy edges near full employment.

• The government has signaled that it will hike rates soon, and Fed Chair Jerome Powell has said that while there is no prioritization between employment and price stability, right now, getting inflation under control is the focus.

The development:

• US consumer prices surged in January more than expected, sending the annual inflation rate to a four-decade high.

• According to Labor Department data released Thursday, the consumer price index climbed 7.5% from a year earlier, which follows a 7% annual gain in December.

• The increase in price across food, electricity and housing costs adds to the urgency for the Fed to increase rates.

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