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Prices in the United States rose at the fastest annual rate seen since 2008, indicating that consumers will pay more for products and services during the summer as the economy recovers from the crisis caused by the pandemic.
The so-called PCE price index rose 0.4% in May, marking the third big increase in a row, new government figures show. It should be noted that some economists surveyed by the Dow Jones and The Wall Street Journal had predicted that there would be a 0.5% advance.
Over the past year, consumer prices soared 3.9%, reflecting the largest increase since 2008, when oil prices hit a record $ 150 per barrel.
The PCE’s inflation rate is now nearly double the Federal Reserve’s 2% target, but senior officials have downplayed the increase.
And is that Federal Reserve leaders insist prices will drop next year as the economy returns to normalas well as when most people go back to work and widespread labor and supply shortages disappear.
Another measure of inflation that does not include food and energy prices also rose to the highest level since 1992.
The PCE price index rose 0.5% in May. That pushed the increase in the last 12 months from 3.1% to 3.4%.
What does all this mean?
These measurements indicate that people will find higher prices in supermarkets, when filling their gas tank or when going on vacation to a popular destination, since the cost of almost all products and services are already increasing.
The Federal Reserve attributes most of the price increase to the reopening of the economy. That is to say that a new wave of purchases – which people had not made due to the pandemic – is putting pressure on companies and, in many cases, they have raised prices, especially since they are also dealing with shortages of supplies and even hand of construction site.
For now, most investors seem to agree with the Federal Reserve’s argument, as stocks continue to rise and long-term US Treasury yields have declined in recent months.
However, some economists worry the Federal Reserve is being too lax, and they have doubts about whether prices will fall again to 2% in 2022 as expected by the Reserve.
Likewise, the central bank has also underestimated the rise in inflation. The Federal Reserve now expects PCE inflation to average 3.4% in 2021, up from 1.8% they had forecast at the end of last year.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.