The number of citizens filing weekly jobless claims for unemployment aid grew to an eight-week high in the initial week of January amidst the raging coronavirus infections. But it stayed at a mark consistent with a fast narrowing labor market. The weekly jobless claims report is released from the Labor Department. It gave more evidence that the jobs market is nearing the maximum employment level. The state unemployment aid rolls at the beginning of the year were the smallest since the past fifty years. These are signs that the worst of high inflation is most likely over. In December, the producer prices had their smallest increase in more than a year. The narrowing labor market and the strong price pressure have left economists forecasting that the Federal Reserve is going to increase the rates in a couple of months.

The initial claims for state unemployment aid grew by more than 20,000 to a seasonally adjusted figure of 230,000 for the week ended January 8. This is the highest level since mid-November. The experts polled had forecasted more than 195,000 applications for this week. An increase in the coronavirus cases, boosted by the Omicron variant, has disrupted school activities to airlines as workers call in sick. The unadjusted claims increased by more than 100,000 to nearly 420,000 in the previous week. This figure was boosted by the increases in New York, which has experienced a high number of coronavirus cases. There have also been high increases in filings in Indiana, Utah, Texas, Tennessee, Missouri, Kentucky, Florida, and California. But the applications fell majorly in Michigan, Massachusetts, and Connecticut.

The Omicron infections are decreasing in New York and the other metropolitan locations. The weekly claims have also decreased from a record high of six million in early April a couple of years ago and remain close to the pre-pandemic mark. The employers are hanging on to their employees. There were more than ten million job openings at the start of the previous month. The Beige Book report of the Federal Report is anecdotal information on the business activity. It is collected from contacts all over the country at the start of the month. It said that many employers allowed part-time work or adjusted the qualification to get more applicants and retain the existing workforces. With more employees getting off the unemployment aid rolls, the labor pool could expand.

The weekly claims report showed that the number of citizens getting aid after the initial week of benefits decreased by nearly 195,000 to 1.6 million in the week ended January 1. It was the lowest mark for the continuing claims since the week ended June of nearly fifty years ago. The federal government reported that the unemployment rate decreased to a low of nearly two years of four percent in December. The workforce was about two million people shorter before the pandemic. The stocks on Wall Street were mostly trading higher. The dollar fell against a basket of currencies. The US Treasury prices increased. Nancy Vanden Houten, lead US economist at Oxford Economics, said, "The rise in claims likely reflects an increase in layoffs due to the surge in COVID cases. Claims may remain elevated in the near term. Still, we expect they will gravitate back to the 200,000 level once the Omicron wave passes."

There is Some Hope

In a separate report, the Labor Department said that the producer price index for the final demand grew by 0.2 percent in the previous month. This was the smallest increase in the producer price index since November of a couple of years ago and following an increase of one percent in November. The index was restricted by a decrease of 0.4 percent in the prices of goods. This is the first decrease since April a couple of years ago. That reflects the decreases in energy and food prices. The prices of goods advanced by a little more than one percent in November. Excluding energy and food, the prices of the goods increased by half a percent after growing by 0.8 percent in November. The prices of services increased by half a percent after growing by nearly a percent in November.

The index grew by nearly ten percent in the past year through December after growing up with a similar percentage in November. Excluding the volatile trade, energy, and food services components, the producer prices increased by 0.4 percent in December. The so-called core Producer Price Index increased by 0.8% in November. The core Producer Price Index increased by nearly seven percent in the past year through December. It matched the increase of November. The government also reported that consumer prices have increased by seven percent year-on-year in December. This was the biggest increase since June of forty years ago. With the Consumer Price Index and the Producer Price Index data in hand, the experts say that the core personal consumption expenditure index increased by about half a percent in December.

This would increase the year-on-year growth to nearly five percent in November. The core personal consumption expenditures price index is one of the measures watched by the Federal Reserve for its inflation target of two percent. The inflation is increasing as coronavirus marches on, and the recovery from the pandemic has caused a lot of bottlenecks in the supply chain. There are many signs that the supply logjam could be breaking up. Last week, a survey by the Institute for Supply Management said that the manufacturers reported improved supplier deliveries in December. But the soaring Omicron infections give a risk to the supply chains. The data showed that China's factory-gate costs increased more slowly than expected in December.

Will Comperholle, an economist at FHN Financial, said, "Monthly price increases are slowing but still high, and the Fed won't veer off its path to finish tapering in March and start hiking rates this year." Bernard Yaros, an economist at Moody's Analytics, said, "Some softening in China's PPI will have implications for US inflation by taking some of the edges of core goods prices. Odds are the first-place weaker growth in China's PPI will show up in the US in import prices, then producer prices, and finally consumer prices."

Consumer Prices See Biggest Rise In Forty Years

The US consumer prices have grown robustly in December as the rental accommodation, and used cars continued their strength increases. It culminated in the biggest annual increases in inflation in more than three decades. It bolstered the Federal Reserve's expectations to increase the interest rates as early as March of this year. The report from the Labor Department came on the heels of data that showed that the labor market was near the maximum level of employment. President Biden has also said that virtually every country was afflicted with inflation because the global economy is recovering from the pandemic. He said, "This report underscores that we still have more work to do, with price increases still too high and squeezing family budgets."

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said, "The Fed is going to be forced to begin raising rates in March and depending on the political pressure on them – from both sides of the aisle – they are going to have to raise rates four or more times in this year and potentially more than that next year." Diane Swonk, the chief economist at Grant Thornton, said, "This is the first time the Fed has chased instead of trying to pre-empt non-existent inflation since the 1980s. Brace yourselves."

Conclusion

The wide-ranging reach of inflation seems to have alerted the officials in the Federal Reserve. Some predictions say that keeping inflation in check could lead the Federal Reserve to revise the monetary policy. This can lead to a probable recession.