According to analysts, the price pressure is “well above the pain threshold” of the Fed.
(Photo: Reuters)
Frankfurt US inflation continued to rise in November. Consumer prices rose by 6.8 percent compared to the same month last year, as the US Department of Labor announced on Friday. That is the highest value since June 1982. Economists had expected an increase of 6.7 percent over the previous year. In October consumer prices in the world’s largest economy rose by 6.2 percent.
This increases the pressure on the monetary authorities to tighten monetary policy ahead of the Fed meeting next Wednesday. This had already announced at the beginning of November that it would reduce its massive securities purchases by 15 billion dollars per month (tapers). In October these amounted to 120 billion. Many experts expect the Fed to accelerate the process.
The chief economic advisor to Allianz, Mohamed El-Erian, described the figures on Twitter as “worrying.” Commerzbank economist Bernd Weidensteiner speaks of “quite broadly based inflationary pressure”. “The data supports our view that the US Federal Reserve should accelerate its bond buying exit next week.
The price pressure remains high and “well above the Fed’s pain threshold”. From Weidensteiner’s point of view, the price development and an apparently ever tighter labor market are hardly compatible with the still very expansive orientation of monetary policy.
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The economist sees the comparatively strong increase in rents as a warning sign. These make up about a third of the shopping cart and tend to change slowly. In November these increased by 3.8 percent compared to the previous year
Energy went up significantly
The main price driver in November was energy, which was 33.3 percent more expensive than in the previous year. It is noticeable here that the oil price had slumped last year as a result of the pandemic. Compared to the very low values of the previous year, it is now correspondingly higher.
The prices for used cars and trucks also rose by 31.4 percent, and those for hotel accommodation by 25.5 percent. Production bottlenecks in the auto industry and a stronger demand for contact-intensive services after the delta wave has subsided play a role here. Food prices rose by 6.1 percent.
If you factor out the particularly volatile prices for energy and food, the so-called core rate was 4.9 percent.
Fed will meet next Wednesday
In the run-up to the Fed meeting next week, several high-ranking central bankers signaled that the Fed could tighten its monetary policy more quickly. Fed Chairman Jerome Powell said that, in his view, the risk of higher inflation “has increased”.
Vice-President Richard Clarida said it might be appropriate to “talk about a faster pace in reducing our balance sheet” at the December Fed meeting. Other of his colleagues, such as Fed Governor Christopher Waller and the head of the St. Louis Regional Fed, James Bullard, made similar views. Both urged to end the bond purchases sooner than planned.
“The Federal Reserve’s turn to fighting inflation likely means that it will announce an acceleration of its tapering process at next week’s meeting,” said Ellen Gaske, economist at US wealth manager PGIM. She assumes that the net purchases could end as early as March 2022.
After that, the way is clear for an interest rate hike. The key interest rate is currently between zero and 0.25 percent. Gaske expects an increase of 25 basis points each in the second and third quarters of 2022.
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