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After a long time of denying, and calling it “transitory” the authorities have at last admitted and acknowledged the reality that the country is facing inflation.
Chairman Powell in spite of calling it “transitory” in a press conference is at least agreeing that the monetary policy has begun to change.
A budget with this year’s CPI inflation forecast of 2.1% was issued by the new Biden administration.
The CPI rose at a 7.4% annual rate in the first two quarters. Even though the other indicators came in a little higher or a little lower, but most of them were much above earlier forecasts. in spite of that, the authorities still dismissed the pressure as “transitory.”
Mid-year the Fed revised up its inflation forecast, but that number factored in a marked deceleration in the rate of the price increase. By November, CPI has risen to an almost 7.0% annual rate for 2021, which was almost thrice the original forecast made by the White House.
Compared to the Fed’s original forecast the consumer price deflator rose more than twice.
The supply-chain problems are getting blamed for entire inflation by the officials. They point at the pandemic during 2020 and 2021, which led to unproductivity in the production facilities and shipping arrangements leading to the global economy’s rebound and resulting in inflation.
The authorities now agree that the instability will last longer than originally expected.
Even if the supply chain is one of the contributors to inflationary pressures, but the official conveniently ignores a bigger picture where the Fed has been pouring into financial markets and through them into the economy for more than 12 years.
The Fed has created enough money to finance a long succession of federal budget deficits right from president Obama to Biden.
All along the Fed has purchased close to $6 trillion in Treasury debt, almost $3 trillion was bought right since the beginning of the pandemic. Leading to inflationary.
The emerging adjustment in patterns of global trade is another contributor to inflation.
For many years the developed economies have been sourcing cheap products from emerging economies. So the possibility of these cheap sources of supplies and other products led to an inflationary response.
Reference Source: Forbes
