Biden argued that some of the “roots of inflation” are “out of (their) control”, namely the Covid 19 pandemic or the effects of Russia’s war against Ukraine.
His message is known at times when gasoline prices -a highly sensitive factor in the American economy- reached a new record this Tuesday and a day before the announcement of the inflation index for April.
On Tuesday, the average price of a gallon (3.78 liters) of gasoline was $4,374, according to the AAA drivers association.
It thus surpasses the previous record of last March 11, after the Russian invasion of Ukraine and the beginning of sanctions against Moscow, when it stood at 4.33 dollars. The average price of a gallon of gasoline a year ago was $2,967.
“The cost of gasoline follows the increase in crude oil prices, at a time when the world seeks to find an alternative source of supply to Russian oil,” explained Andy Lipow of Lipow Oil Associates.
In March, inflation reached 8.5% in 12 months in the United States, sAccording to the CPI index on which pensions are indexed.
The skyrocketing of gasoline and food prices due to the war in Ukraine, contributes greatly to the general increase. Without these two more volatile items, core inflation also reaches 6.5%, and remains at a 40-year high.
Meanwhile, in the same month, the underlying PCE index was 5.2% year-on-year, and 6.6% if all prices are considered. The Federal Reserve, the US central bank that sets interest rate policy, takes the PCE as its guide.
Both indices are calculated based on methodologies and a different basket of goods, hence the disparity in percentages.
To combat inflation, the Federal Reserve raises its benchmark rates. This generally increases the cost of credit that banks give to their clients, and slows down consumption and investment.
The Fed “has the right tools” and should act “quickly” to curb inflation, with a new rate hike, said on Tuesday John Williams, president of the New York branch of the monetary entity.
“I expect the FOMC (Monetary Policy Committee) to move quickly to get guide rates back to more normal levels this year” i.e. around 2-2.50% vs. 0.75-1.00% today , the official said at a conference in Germany of the Bundesbank and the National Association for Business Economics (NABE).
The US central bank raised rates by a quarter percentage point in mid-March and by another half point on May 4, their biggest increase since 2000.
The FOMC estimated that further half percentage point increases will be “on the table at the next two meetings” on June 14-15 and July 26-27.
“We have an advantage over previous inflationary episodes,” Williams said: “Our monetary policy tools are especially powerful in sectors where we see the largest imbalances and signs of overheating, such as durable goods and housing.”
Source: Ambito
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