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U.S. President Joe Biden

Inflation in the US remained unexpectedly high last month, news that drove Wall Street to its worst day in more than two years.

Prices rose 8.3% in the 12 months through August, the Labor Department said, faster than the 8.1% that economists had expected.

That was down from 8.5% in July, driven by lower petrol costs.

But the costs of food, housing and medical care continued to surge, disappointing investors.

The Dow Jones Industrial Average sank nearly 4%, the S&P 500 dropped 4.3%, and the Nasdaq plunged more than 5%.

It marked the steepest day of declines since June 2020.

For US President Joe Biden, whose approval ratings fell below 40% earlier this year amid cost of living concerns, the report was also a troubling sign ahead of the national elections in November. They will determine whether Mr Biden’s Democrats maintain their slim control of Congress.

While Mr Biden’s ratings have recovered slightly in recent weeks as petrol prices have subsided, the issue remains “a huge problem”, said pollster Chris Jackson.

For a president with approval ratings like Mr Biden’s to see his party pick up seats in the mid-terms would be unprecedented, he added.

“Americans have been telling us for months now that it’s the number one concern they have and, rightly or wrongly, they blame whoever’s running the country for that,” said Mr Jackson, senior vice-president at the Ipsos polling firm.

Inflation in the US peaked at 9.1% in June, the fastest increase seen since the early 1980s. It fell to 8.5% in July, as petrol prices fell, easing again last month.

In a statement on Tuesday, Mr Biden focused on the improvement, saying: “Overall, prices have been essentially flat in our country these last two months: that is welcome news for American families, with more work still to do.”

Speaking to reporters en route to Delaware later in the day, the Democratic president said he was not concerned about the latest inflation report.

Earlier, Mr Biden hosted a White House event to celebrate a month since passage of the Inflation Reduction Act, a spending bill that a nonpartisan congressional scorekeeper found would have no meaningful impact on consumer prices.

Money worries remain at the forefront of many consumers’ minds.

Kenny Shorne recently took a break from his master’s degree programme in communications, concerned about being able to afford it as other costs climb. The 23-year-old, who supports himself with construction and photography jobs, lives in New Jersey with his family to try to keep expenses down.

Kenny Shorne
Image caption, Kenny Shorne said high petrol prices were a problem

“Inflation makes it hard for me to see a liveable future,” he said. “It really gets to me because I don’t know what the answer is.”

The cost of groceries in the US jumped 13.5% in the 12 months to August, while housing costs climbed 6.2% and medical care rose 5.6%.

Energy costs – one of the big drivers of inflation – also remain far higher than a year ago, despite dropping sharply in the past two months, falling more than 10% from July to August, the Labor Department said.

Overall the consumer price index, which tracks goods and services across the economy, was up 0.1% from July to August, as the fall in petrol costs was offset by increases in other areas.

Some breathing room?

While economists remain concerned as prices outside of energy continue to rise, the annual number typically matters most in terms of shaping people’s perceptions, said Betsey Stevenson, professor of economics and public policy at the University of Michigan, who served in the White House under former President Barack Obama.

“It’s really good news that gas prices are coming down. it gives people a little bit more room in their budget, a little bit more breathing room and I think it also makes people feel a little bit better,” she said.

But she added: “I don’t think it speaks to being out of the woods”. She expects inflation to remain higher than the US central bank’s 2% inflation target even at the end of next year.

Like central banks in other countries, including the UK, policymakers at the Federal Reserve have been raising interest rates since March to tackle the problem.

By making borrowing more expensive, the hikes are intended to cool demand from households and businesses, helping to reduce some of the pressures pushing up prices.

The Fed is widely expected to announce another large increase this month, a move analysts said was all but confirmed by latest report. But big rate increases also raise the risk of recession as the economy slows.

“Investors should brace themselves for even higher rates than they anticipated before today’s release,” said Ronald Temple, managing director, co-head of multi-asset and head of US equity at Lazard Asset Management.

“Despite the sharpest tightening of monetary policy in decades, the Fed still has more heavy lifting ahead.”

Source: bbc.com

Ayuure Atafori
Author: Ayuure Atafori

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