If consumers in the United States feel like their dollar isn’t stretching as far as it used to, there’s a good reason for that.
Because it isn’t.
Friday brought more confirmation of rising inflation after the US Department of Labor said that its Producer Price Index (PPI) – which measures prices that businesses fetch for the goods and services they sell – jumped 8.3 percent in August from a year earlier.
That is the biggest advance since the data was first measured back in November 2010.
August’s PPI rose 0.7 percent from the previous month, when producer prices increased by 1 percent.
Inflation has become a hallmark of the US and global economic recoveries from COVID-19, as businesses ramp up operations en masse, triggering bottlenecks in the supply of raw materials. Labour shortages are also creating headaches for US businesses, many of which have had to increase pay or offer signing bonuses to attract workers.
July saw a record 10.9 million job openings in the US.
Prices for final demand services moved up 0.7 percent last month, marking the eighth consecutive advance.
Strip out food and energy, which tend to be more volatile, and the so-called “core” PPI moved up 0.3 in August after rising 0.9 percent in July.
Over the year, core producer prices rose 6.3 percent – the largest advance since data were first calculated back in 2014.
When prices rise for businesses, those costs are often passed on to consumers, whose spending accounts for roughly two-thirds of US economic growth.
While a little bit of inflation is a good thing for an economy because it incentivises consumers to buy goods and services now, rather than sit on their wallets in expectation of prices dropping, too much inflation can be deeply destructive if it triggers a vicious upward price spiral.
The big fear is that if inflation gets out of control, it could prompt the US Federal Reserve to raise interest rates abruptly and possibly derail the economic recovery.
But Federal Reserve Chairman Jerome Powell has repeatedly said that he and his fellow policymakers believe the current wave of higher prices is a temporary consequence of supply bottlenecks and that inflation will eventually moderate.
Inflation is also tougher on lower-income households because it eats up a bigger slice of their income, especially for essentials like food and petrol.
The economic rebound hit a speed bump this summer as COVID-19 infections linked to the highly contagious Delta variant of the coronavirus surged in parts of the country.
On Wednesday, the Federal Reserve said that economic activity in the US had “downshifted” in July and August. Last month, the economy added a paltry 235,000 jobs – the slowest pace of job creation since January and a dramatic slowdown from the previous month.