Persistent US Inflation Amid Strong Employment Growth
The United States continues to grapple with stubborn inflation even as its economy displays robust employment growth. Recent data from the U.S. Bureau of Labor Statistics indicates that the Consumer Price Index (CPI) rose by 3.4 percent year-on-year in April, a slight improvement from the 3.5 percent increase in March. While this suggests a marginal easing of inflation, it remains well above the Federal Reserve’s target of 2 percent.
Core CPI, which excludes volatile food and energy prices, climbed by 3.6 percent, surpassing the general CPI. Notably, housing costs surged by 5.5 percent compared to the previous year, indicating that rising housing prices are a significant contributor to the lingering inflation rather than international energy prices.
Earlier in June 2023, inflation seemed to be cooling, with the CPI dropping to 3.0 percent, raising market hopes for a potential Federal Reserve rate cut. However, inflation ticked up again to 3.2 percent in July and accelerated further to 3.7 percent in August. The modest decrease to 3.4 percent in the latest report shows that over the past eight months, inflation has eased by only 0.3 percentage points, highlighting ongoing inflationary pressures. Consequently, the Federal Reserve is likely to hold off on any interest rate cuts in the near term.
Parallel to the inflation data, the U.S. labor market remains exceptionally strong. In April, the economy added 253,000 non-farm jobs, and the unemployment rate edged down to 3.4 percent—the lowest level since May 1969. This robust job growth suggests that higher inflation has not deterred employment expansion. In fact, increased employment has driven wage growth, which may be contributing to the sustained inflation rates.
The coexistence of persistent inflation and a strong labor market presents a complex challenge for policymakers. Balancing the need to curb inflation without stifling economic growth requires careful navigation. The Federal Reserve faces the delicate task of adjusting monetary policy to address inflation while supporting continued employment gains.
Reference(s):
The coexistence of U.S. stubborn inflation and robust economy
cgtn.com
