We explain how much remains to be done for inflation to give a truce | Univision Money News

This week the chairman of the Federal Reserve was asked to say, in five words, what was on his mind.

“Get inflation back under control” or “get inflation back under control”, replied Jerome Powell in an interview with the Marketplace medium in which he promised again and again that he will work to bring inflation back to the 2% range annual.

We put together four charts that help visually understand just how much consumer price growth has accelerated since 2019, before the pandemic hit and the atypical times that have come with it. Also the long downward path that awaits them before returning to a more usual level like the one mentioned by the head of the Federal Reserve. With an emphasis on the costs of gasoline, food and housing, three items that can dictate the course of inflation.

The increase in prices stood at 8.3% annually in April, a very slight slowdown compared to the previous month and a number that far exceeds what we are used to in the United States.

Returning to the 2% range will take until the end of next year according to expert forecasts. Even the Federal Reserve itself believes that the rise in prices will be closer to 3% by the end of next year and that it will drop to that coveted 2% only at the end of 2024.

That means prices will slow their advance, not fall. In other words, we will continue to pay more for goods and services in general as the months go by, although at a less pronounced rate.

Powell himself has acknowledged that there are factors with which the Federal Reserve (Fed) cannot maneuver. There are the problems with supply chains that have dragged on since the pandemic began. There are also the repercussions of the war in Ukraine on the rest of the world.

“What we can control is demand, we can’t really affect supplies with our policies,” Powell said. With policies refers to the use of the reference interest rate as an instrument to control inflation and moderate the strong demand of consumers in the country.

“Supplies are a big part of this story. But beyond that, there are huge geopolitical events in the world that are going to play a very important role in the economy in the next year,” he added.

Housing, a hot market with no signs of cooling down

What happens in this area is key, since the prices of what is known in English as ‘shelter’ represent more than 30% of the price basket that makes up the consumer price index, the indicator that tells us how the inflation.

The real estate market has registered a stratospheric advance in prices in a general way, especially the prices of houses and apartments sold that end up being transferred in some cases to the people who rent. In places like Miami it has been so steep that some rents eat up 60% of what a person earns a month.

And in that sector there is also a “lag effect” that causes prices there to fall at a slower rate, explains an analyst at the ING insurance company. “Rental contracts typically change only once a year when they have to be renewed, so they take time” to show a slowdown in their prices, says James Knightley, chief international economist at ING, in a commentary. Therefore, “housing components (within the consumer price index) are not likely to decline anytime soon,” he adds.

The persistent rise in housing costs is evident in the chart above. Those prices rose 5.1% in the 12 months ending in April and have maintained an average rise of 0.5% month-over-month, according to government data.

Gasoline, whose gallon can be around $6 this summer

The prices of one of the fuels we use the most took a breather in April. But the next inflation figure would show that relief was short-lived. This is because gallon prices are again hovering around record levels in the United States and could sustain their climb towards $6 in the coming summer. The national average stood at $4.6 this May 21.

Energy prices concentrate the greatest increase in the price basket in recent times. Those of gasoline, for example, climbed 43.6% in the 12 months ending in April.

There are two factors here that are fueling prices. On the one hand, the demand for gasoline in the United States has grown in May and this has eroded the available inventories of that fuel, explains the AAA drivers association. “Tighter supplies and higher demand have supported prices at gas stations,” AAA said.

Added to this from the external front is the volatility of oil prices in world markets, where the conflict in Ukraine and what happens to Russia’s energy exports continue to weigh.

“It is unlikely that there will be a substantial reduction in the annual inflation rate until there are significant improvements in geopolitical tensions (which would cause energy prices to fall), in problems in supply chains and in the shortage of workers” in the labor market, explains ING economist Knightley.

“Unfortunately I don’t know that any of that will happen soon: the Russia-Ukraine conflict shows no signs of ending and the lockdowns in China will continue to impact the world economy,” he adds.

Food and a rise that hits the poorest households

This sector is also affected by the increased demand from consumers in the country and the problems with some supplies of raw materials such as wheat and sunflowers due to the war in Ukraine. Both Ukraine and Russia are key producers of these two raw materials.

In the poorest households, this escalation is felt with particular force, since they allocate a good part of their income to the purchase of food. A look at the survey that the Census Bureau conducts of households across the United States helps to understand this.

Of the 35.1 million Hispanic households that responded to the survey conducted in the week of April 27 to May 9, 6.7 million recognized that sometimes or frequently they do not have enough food on their tables.


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