The US Consumer Price Index for January showed that the consumer prices in the country increased by a robust margin in the previous month. The Consumer Price Index grew by 0.6% in the previous month after experiencing a similar growth a couple of months ago. The prices of food increased by 0.9%. The cost of food consumed at home grew by one percent. There was also robust growth in the costs of vegetables, fruits, dairy, bakery products, and cereals. The cost of meat also had an average increase. The natural gas and gasoline prices decreased, while electricity prices increased. Experts had predicted that the Consumer Price Index would increase by 0.5% in the previous month and grow by more than seven percent on a yearly basis. Starting from the report of January, the Consumer Price Index was re-evaluated based on the expenditure data from a couple of years ago. This increased the weight of goods and trimmed the services. This caused some of the unexpected increases in the Consumer Price Index.

The increase in the Consumer Price Index caused the largest growth in inflation in nearly half a century. This has led to high speculation in the financial markets that there will be a high hike in the interest rates from the Federal Reserve in the following month. The US Consumer Price Index for the previous month was released by the Labor Department. It showed that there was a wide increase in the prices. The increase was led by rising food, electricity, and rent. This could lead to even more political pressure on President Biden. The popularity of the President has been on the decline amid some anxiety over the increasing cost of living in the country. The raging inflation has gone past the target mark of the Federal Reserve. This could be hazardous to the economic agenda of the present Federal Government. In a statement, President Biden said that American families are facing hardships right now. But he added that there are some signals that the economy will wade its way successfully through the present challenges.

President Biden was alluding to the level in the prices of motor vehicles which has not changed. This segment is seen as one of the traditional factors of inflation. The economy of the nation is facing high inflation right now. This has been caused by a major shift in the spending on goods from the service sector because of the coronavirus pandemic. The shares on Wall Street declined. The dollar did not change a lot against a basket of currencies. The US Treasury costs declined. Bank of America Securities economist Alexander Lin said, "For the Fed, this report provides another wake-up call. Inflation is here, and it continues to make its presence known everywhere. We believe that today's print endorses the Fed to move more quickly, and the market will likely encourage the Fed to hike 50 basis points at the next meeting."

Chief Global Strategist at JP Morgan Asset Management David Kelly said, "In this environment, an over-reactive Fed that starts tightening too much and too fast might mean that we end the year with much slower growth to accompany lower inflation." Senior economist at Wells Fargo Sarah House said, "As the most immediate price distortions brought on by the pandemic and initial policy response unwind, wage pressures continue to build and point to a more persistent source of inflation."

Consumer Eyes on the Federal Reserve

Many wage inflation measures have grown by a wide margin in the previous months. But not all experts think that the Federal Reserve will move so strongly on the initial rate hike. This is because it will increase the rates little by little at least six times this year. The monthly inflation could see a slowdown in the coming period because there will be an easing in the supply constraints as the infections due to the Omicron variant of the Coronavirus decline. The revised Consumer Price Index has given the core goods segment more weight. It is expected that the transfer in the spending back to the services sector will also assist in moderating inflation. The imports of goods also increased to a record level a couple of months ago because their ships offloaded the cargo they were holding after experiencing months of delays because of a severe shortage of labor at ports worldwide.

The inventories of wholesale motor vehicles also grew by the highest numbers in the past decade a couple of months ago. But the high inflation is going to last for some time. This shows that the impact of the rising wages has been delayed. Various firms are increasing the compensation as they compete in the labor market, which is not seeing the influx of huge workers because of the coronavirus pandemic. There were nearly eleven million job openings a couple of months ago. This was underlined by another report from the Labor Department that showed that the weekly jobless claims increased by 23,000 to a seasonally adjusted figure of 248,000 for the week ended February 12. The weekly jobless claims have seen a little increase due to the freezing temperatures in many parts of the country. But the increases in the wages received by the labor market are being canceled out by the raging inflation. The high levels of inflation come at a time when the economy of the nation is standing at a crossroads.

Asset allocation strategist at LPL Financial Barry Gilbert said, "With another surprise jump in inflation in January, markets continue to be concerned about an aggressive Fed. While things may start getting better from here, market anxiety about potential Fed overtightening won't go away until there are clear signs inflation is coming under control. While we still expect more favorable base effects and a partial easing of supply shortages to push core inflation lower this year, this suggests it will remain well above the Fed's target for some time."

Consumer Price Index: Growth is Predicted to Slow Down

The swift growth speed to the previous year is predicted to slow down this year as the monetary and fiscal stimulus goes away. The growth is still going to be above the trend line. But the higher interest rate hikes from the Federal Reserve combating inflation could prove a little troublesome. But the Federal Reserve will tighten the monetary policy after a couple of years of unprecedented accommodation. Nearly every policymaker of the central bank says that they predict an increase in the interest rates in the next month. The financial markets are speculating that there is a big chance of an increase of nearly two percentage points by the end of this year. The Federal Reserve officials are planning to act soon to contain the rising inflation. The hikes in the interest rates are predicted to start in March and then continue throughout the year.

The Federal Government, in a statement, said that it respects the independence of the Federal Reserve and requested Congress to vote on a couple of nominees to the board of governors. The Government said, "The President will continue to make progress on his three-part plan of addressing supply chain disruptions; lowering kitchen tables costs with his Build Back Better agenda, and promoting more competition." Former Chairman of the White House Council of Economic Advisers Jason Furman said, "The truth is the President can do very little to lower inflation. He can and should do everything he can on supply (and he is doing most of it already) but won't add up to much. The Fed needs to hike in March."

Conclusion

The huge amount of money spent to provide relief from the coronavirus pandemic increased the spending by a huge margin. This ran against the constraints in the capacity as the pandemic sidelined the employees required to produce and move the finished goods to the final users. The financial markets are speculating that there will be an increase in the Consumer Price Index next month.