High Inflation Is Entering Its Fifth Year | Global News Avenue

The post-pandemic burst of high inflation, once described by Fed officials as “transitory,” is now entering its fifth calendar year.

If economists’ forecasts hold true, the official inflation report will show Consumer price growth accelerated in Decembercarrying inflationary momentum into the new year. Fed officials expect their preferred inflation measure to average 2.5% in 2025, which would mark five years of inflation above target.

The dubious milestone underscores the far-reaching economic impact of a surge in inflation that began in 2021. family budgetthe U.S. economy, and even presidential politics. If PCE inflation trends were followed, an item priced at $100 in February 2020 would sell for $118 in November. By comparison, if inflation were 2%, that would be about $108, similar to typical pre-pandemic rates.

Where did inflation come from?

Inflation surged starting in 2021 as economies began to recover from the pandemic, accelerating in 2022 as the shock of COVID-19 rippled through the international economy’s complex supply chains.

Consumers, many flush with cash from pandemic relief programs, are running short on the things they want to buy, and businesses are responding by raising prices. (With inflation occurring almost worldwide, many economists blame it more on supply chain disruptions than stimulus.)

The worst episodes of inflation are relatively short-lived. Inflation has fallen sharply since its peak in 2022, when annual core PCE inflation topped 5.6%. But while Fed officials have raised interest rates to two-decade highs ahead of gradual cuts in 2024, it remains difficult to fully control inflation. High interest rates are designed to curb borrowing and spending across the economy, thereby dousing the fires of inflation.

The “last mile” of high inflation stubbornly plagues the economy. Investors’ expectations that inflation will remain above target have helped push the yield on the 10-year Treasury note higher, which has kept mortgage rates high, Frustrating potential homebuyers and a freeze in the housing market.