The Consumer Price Index, the major inflation metric, surged by 5.4 percent on the year through June, representing the largest year-over-year increase since 2008, according to data released Tuesday by the Department of Labor.
The jump was significantly driven by price hikes in the used car and truck market, the Labor Department said. Federal Reserve and elected officials have expected inflation to moderate as the supply and demand disequilibriums in the average consumer basket rectify now that the pandemic is dwindling. They’ve suggested that production bottlenecks and supply squeezes are largely to blame for the upticks, which they claim will resolve over time rather than contribute to sustained inflation.
If wages do not move in lockstep with inflation, price increases impose an effective tax on the consumer, reducing the length a dollar can be stretched to pay for goods and services.
To curb inflation, the Fed has a few but limited weapons in its arsenal. One instrument at its disposal is to raise rates to prevent the economy from overheating, but that carries with it the risk of adversely affecting the stock market and other asset classes.
Source: National Review
