US inflation at its highest level since 1990

The upward trend in prices in the USA accelerated further from a high level in October. The consumer prices increased compared to the same month last year by 6.2 percent, such as the Department of Labor in Washington announced. This is the highest inflation rate since 1990. Analysts had only expected an acceleration to 5.9 percent on average. In the previous month, the rate was 5.4 percent. According to the ministry, the price increase was broad and affected numerous categories. Energy, rents, groceries, used cars and new cars were significantly more expensive. The inflation rate excluding energy and food, the so-called core rate, rose from 4.0 to 4.6 percent. This rate is mostly seen by economists as a reliable measure to determine the underlying price trend. Inflation is thus moving even further away from the medium-term target value of the US Federal Reserve, which is two percent. However, the Fed regards the increased inflation as a transitional development determined by special corona factors, which should soon weaken again. Critics complain that the longer the inflation rate remains high and the greater the deviation from the Fed's target, the more this view is shaken. In the opinion of Thomas Gitzel, chief economist at Liechtenstein’s VP Bank, the US central bank is likely to feel confirmed in its decision to cut back its bond purchases by the unexpectedly strong rise in inflation. "The US monetary authorities will already reduce their monthly bond purchases in the current month. That is a good thing, because the time for expansionary monetary policy measures has expired," wrote Gitzel in a comment. It is exciting to see, however, that the bond markets are becoming increasingly skeptical about the economy. "The yields on long-term US government bonds have recently declined noticeably. The material shortages are not only driving up prices, but also increasing economic risks," said Gitzel. If the material shortages persist in the coming year, the Fed will also have to take a closer look at economic risks. LBBW economist Dirk Chlench expects that the US central bank will initiate the key interest rate turnaround by the end of 2022 at the latest. "The US Department of Labor writes that prices rose across the board in October. In view of these figures, it is becoming increasingly difficult for the US Federal Reserve to attribute the acceleration in inflation solely to special and catch-up effects," commented Chlench on the figures.