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US inflation surges past 7% in fastest pace in 40 years

The US consumer price index is expected to have risen in January at its fastest annual pace since 1982, as inflationary pressures continue to afflict the rapid economic recovery.

According to the consensus forecast of economists polled by Reuters, CPI increased 7.3 per cent last month compared with January 2021, a more rapid rate than the 7 per cent annual rise recorded in December.

On a monthly basis, CPI is expected to have climbed 0.5 per cent, similar to its pace in December. The data are scheduled to be released at 8:30am Eastern time on Thursday.

The persistence of high inflation has already prompted the Federal Reserve to speed up its timetable for tightening monetary policy, with the first interest rate increase since the onset of the pandemic expected to be approved next month.

“While the Omicron variant may weigh on activity in the near term, the high levels of inflation and the tightness in labour markets make a compelling case to begin recalibrating the stance of monetary policy,” Loretta Mester, president of the Cleveland Fed and a voting member of the Federal Open Market Committee, said on Wednesday, adding that she supported raising the central bank’s main interest rate in March.

The Fed has not committed to any particular pace for its tightening cycle, saying the tempo and scale of the rate increases would depend on the data, making the inflation figures particularly pivotal.

If the CPI increases continue to exceed expectations, it could warrant more aggressive tightening by the Fed, whereas an easing of inflationary pressures could lead to a slower pace of rate rises.

“The task before us is to remove accommodation at the pace necessary to bring inflation under control,” Mester added. “As this process continues, our monetary policy decisions will need to be data-driven and forward-looking.”

High inflation has not only challenged the Fed, but also proved to be politically problematic for President Joe Biden and members of the Democratic party heading into the midterm elections.

Although the recovery has benefited from strong job growth — including in January — and rising wages, those positive factors have been undermined by the increase in the cost of living and supply chain disruptions, exposing the Biden administration to a barrage of attacks from Republican lawmakers.

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