Unheard of since December 1981: annual inflation reached 8.6% in May in the United States, according to figures published Friday, June 10 by the Ministry of Labor. This announcement led to an immediate fall on Wall Street (2.9% for the S&P 500 and 3.5% for the Nasdaq, an index rich in technology stocks) and a rise in ten-year interest rates, which went from 3.02% to more than 3.17%.
This figure confirms the failure of the Federal Reserve (Fed), chaired by Jerome Powell: with years of free money policy, the American central bank has allowed the inflation that we thought had disappeared to reappear. This general rise in prices aggravates the difficulties of the presidency of Joe Biden, five months before the midterm elections. Consumer confidence, measured by the University of Michigan, collapsed in June, dropping from 58.1 to 50.2%: this figure had never been reached, including during the great financial crisis of 2008. It is embodied in the price of a gallon of gasoline, which is now close to 5 dollars (1.25 euros per litre).
The Russian invasion of Ukraine increased pressure on pre-existing raw materials and energy. China’s pandemic lockdown has disrupted value chains, but inflation is now affecting all sectors of the economy, fueled by ultra-loose fiscal and monetary policies during the Covid-19 crisis. “Unpopular opinion: what causes inflation is not Putin, but too much money for too few goods”, summarizes on Twitter the financier Michael Gayed.
Real wages down
Many traders hoped that inflation had started to recede. The May figure is a cold shower: over one year, the price of energy has increased by 50%, food by 10%, new vehicles by 12.6%, transport by 7.9% and 5.5% housing. Between April and May, there was no deceleration: prices increased by 1% (or 12% on an annual basis), against 0.7% on average over the previous six months. Excluding energy and food, the pace remains on a high plateau (0.6 point increase). Even the price of used cars, which had soared due to the shortage of new vehicles, has started to rise again.
This inflation is eroding the real wages of Americans, who have fallen by 0.5 points in one month and by 3% over one year. This negative news has a more satisfying flip side: the United States is not engaged in an inflation-wage spiral, despite unemployment having fallen to historic lows. However, American workers are likely to be more and more demanding, now anticipating inflation of 5.4% next year and 3.3% for the next five years (compared to 4.2% and 2.8% one year ago).
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