Inflation Sees Biggest Jump Since 2008

Data released Tuesday by the  Department of Labor shows inflation has surged in the biggest jump since 2008. The Consumer Price Index, which is the major inflation metric, showed a surge of 5.4 percent over the last year through June.

National Review reports the jump “exceeded many financial firms’ and economists’ predictions. For example, economists at Goldman Sachs expected only a 5.1 percent increase from the prior year, up from 5 percent the prior month.”

The Labor Department says the increase was largely driven by price hikes in the used car and truck market, which accounted for over a third of the increase. Lawmakers and the Federal Reserve suggest inflation will moderate as the pandemic dwindles.

“A large component in the inflation equation that the Fed can’t control as easily as inflation expectations, or what people think the direction of prices will be” reports National Review which also states, “the cues from some Fed officials have been mixed and somewhat ambiguous.”

“It’s still too early to tell how things are going to evolve,” said John C. Williams, the president of the Federal Reserve Bank of New York. “We’ll just have to watch it carefully,” he said Monday to reporters.

National Review reports:

When asked about the future of the Fed’s gargantuan asset purchase monetary policy, once referred to as “quantitative easing” after the 2008 financial crisis, William said: “The last few months, and I guess the last three months, we’ve seen some pretty strong movements, and kind of crosscurrents, both in the employment data and the inflation data.”

If inflation persists but wages do not move in lockstep with it, an effective tax will be imposed on the consumer, reducing the length a dollar can be stretched to pay for goods and services.

To curb inflation, the Fed has a few but limited weapons in its arsenal. One instrument at its disposal is to raise rates to prevent the economy from overheating, but that carries with it the risk of adversely affecting the stock market and other asset classes.