Inflation in November: US inflation rises to 6.8 percent

Exploding energy costs drove US inflation to its highest level since 1982 in November. That should accelerate the exit of the central bank from its loose monetary policy.

Inflation in the US climbed to 6.8 percent in November, the highest level since June 1982. Economists had expected this surge after the inflation rate had reached 6.2 percent in October. Delivery problems, material bottlenecks and exploding energy costs are the cause of the rise in prices.

The rate is well above the Fed’s inflation target of two percent. The Federal Reserve has long viewed the increased inflation as a temporary development determined by special corona factors. Federal Reserve Chairman Jerome Powell recently indicated that this view is no longer tenable.

As a result, the Fed is coming under increasing pressure to abandon its loose monetary policy course earlier than initially planned. “If an argument was needed to convince the US Federal Reserve of the necessity of a more rapid exit from the ultra-loose monetary policy, then this was provided by today’s inflation data,” explained LBBW analyst Elmar Völker. The high pace of energy prices stands out with a plus of 33 percent compared to the previous year.

When will the Fed raise rates?

At the Fed’s interest rate meeting next Wednesday, it is expected that the central bank could turn off the tap earlier. It should accelerate the pace of winding down its monthly purchases under its bond program. This process of monetary policy normalization, which was initiated in November, is known in technical jargon as tapering and is a prerequisite for a turnaround in interest rates. “We expect the tapering speed to double to 30 billion dollars per month. This would bring purchases back to zero by the end of March,” said Commerzbank expert Christoph Balz. After that, the way would be free for a key rate hike, which can be expected in the second quarter of 2022.

In the course of the recovery from the economic effects of the corona pandemic, prices have also risen sharply in Europe. Reasons include higher energy prices and problems in international supply chains. In Germany, the inflation rate reached 5.2 percent in November.