Deutsche Bank has issued a stark warning on inflation, after consumer prices in the U.S. rose at a faster rate in May than any time since the Great Recession.

In its report Thursday, the government said that overall consumer prices rose 0.6 percent in May, bringing the annual inflation rate to 5 percent, the highest level since August 2008. 

Core inflation, which excludes volatile energy and food costs, rose 0.7 percent in May after an even bigger jump in April, and is up 3.8 over the past 12 months, the quickest rate since 1992.

In a report on Monday, Deutsche Bank wrote: ‘Rising prices will touch everyone. The effects could be devastating, particularly for the most vulnerable in society.’

‘Few still remember how our societies and economies were threatened by high inflation 50 years ago. The most basic laws of economics, the ones that have stood the test of time over a millennium, have not been suspended,’ the report warned.

The report expressed concerns that huge deficit spending by Congress as well as the Federal Reserve’s loose monetary policy could supercharge inflation rates.

‘The current fiscal stimulus is more comparable with that seen around WWII’ when deficits ran 15 to 30 percent of GDP for four years, the report said. ‘While there are many significant differences between the pandemic and WWII we would note that annual inflation was 8.4%, 14.6% and 7.7% in 1946, 1947 and 1948 after the economy normalized and pent-up demand was released.’

‘Monetary stimulus has been equally breath-taking,’ the report added of the Federal Reserve, which has flooded the economy with money through bond purchases. 

‘In numerical terms, the Fed’s balance sheet has almost doubled during the pandemic to nearly $8 trillion. That compares with the 2008 crisis when it only increased by a little more than $1 trillion, and then increased another $2 trillion in the subsequent six years.’ 

‘We worry that inflation will make a comeback,’ the report concluded. ‘An explosive growth in debt financed largely by central banks is likely to lead to higher inflation.’ 

Republicans also blame the sharp rise in inflation on lax monetary policy and freewheeling stimulus spending by the Biden administration, which has proposed a record $6 trillion federal budget for the next fiscal year. 

Inflation in the U.S. rose at a faster rate in May than any time since the Great Recession, data on Thursday showed

People walk through a shopping area in Manhattan on Monday. The reopening surge is driving prices higher for consumers

Republicans blame President Joe Biden’s free spending policies, including his record proposal for a $6 trillion federal budget

US inflation rates last peaked in the 1970s, as food and gas prices soared in the OPEC oil embargo

‘President Biden’s inflation crisis is here and it’s devastating for our poorest families,’ Senator Rick Scott, a Florida Republican, said in response to the new data. 

‘It’s time to end the madness. It’s clear we cannot rely on Joe Biden and the Democrats to stand up and protect American families,’ said Scott, who is pushing a bill to slash government spending and rein in federal debt. 

‘Inflation is up 5%—and Biden wants to spend $6 trillion more to see how high it will go,’ tweeted Senator Tom Cotton, an Arkansas Republican.  

Though the new inflation measure exceeded economists’ forecasts, Fed Chair Jerome Powell has repeatedly insisted that higher inflation will be transitory, and it was unclear whether the new data would prompt a reassessment of monetary policy to meet its 2 percent average inflation goal.

The U.S. central bank slashed its benchmark overnight interest rate to near zero last year and continues to flood the economy with money through monthly bond purchases. 

Senator Pat Toomey, a Republican from Pennsylvania and economy-focused moderate, argued that the Fed needs to immediately adjust course and raise interest rates before inflation spirals out of control. 

‘With consumer prices up 5% over the last year, and core prices (excluding volatile food and energy) up 3.8%—a 29-year high!—we should all be very concerned. It’s long overdue for the Fed to begin the process of normalizing its monetary policy,’ Toomey tweeted.

‘The combination of the Fed’s average inflation targeting and its view that inflation will be transitory virtually guarantees the Fed will be behind the curve if inflation is enduring. Congress’ massive spending contributes to the problem. It’s time to end it,’ he added. 

Senator Bill Hagerty, a Tennessee Republican who sits on the Banking Committee, called the spike in inflation ‘a clear and immediate tax on the middle class.’  

‘President Joe Biden’s partisan trillion-dollar spending sprees are raising prices on groceries and gas and everything in between,’ he said in a statement. ‘Unless our supply chains normalize quickly to meet pent-up demand from the pandemic, this tax hike on the American people will continue and could go even higher.’ 

Some Republicans, including Scott, raised the specter of a return to the inflation rates of the 1970s, when annual inflation jumped as high as 13.5 percent as food and gas prices soared.

Democrats, meanwhile, remained largely silent on the new inflation data, or insisted that it was a transitory effect driven largely by such factors as a shortage of used cars, saying it will quickly disappear. 

The Fed views a controlled amount of inflation as good, because it encourages spending and business investment, rather than hoarding cash. 

But out-of-control inflation can be dangerous, eroding the spending power of consumers and hitting low-income families and elderly pensioners the hardest.

Other factors driving inflation include rising consumer demand post-pandemic that is bumping up against a shortage of components, from lumber and steel to chemicals and semiconductors, that supply such key products as autos and computer equipment, all of which has forced up prices. 

The sharp rise in consumer prices reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy. 

And as consumers increasingly venture away from home, demand has spread from manufactured goods to services – airline fares, for example, along with restaurant meals and hotel prices – raising inflation in those areas, too.

A labor shortage has also contributed to rising prices, as companies continue to offer high wages and incentives to lure reluctant workers back into the job market. 

More than 15.3 million Americans are still on some form of unemployment benefit, data on Thursday showed, yet employers are struggling to attract qualified workers back into jobs, and about eight million fewer people are working than before the pandemic began.

From breakfast cereal to toilet paper: These are the companies raising prices on everyday consumer staples 

From the cereal maker General Mills to Chipotle Mexican Grill to the paint maker Sherwin-Williams, a range of companies have been raising prices or plan to do so, in some cases to make up for higher wages that they’re now paying to keep or attract workers.

‘The inflation pressure we’re seeing is significant,’ General Mills CEO Jeff Harmening said at a recent investor conference. ‘It’s probably higher than we’ve seen in the last decade.’

The company, which makes such cereals as Honey Nut Cheerios, Lucky Charms, and Trix, has said it’s considering raising prices on its products because grain, sugar and other ingredients have become costlier. 

Hormel Foods has already increased prices for Skippy peanut butter. Coca-Cola has said it expects to raise prices to offset higher costs.

Kimberly-Clark, which makes Kleenex and Scott toilet paper, said it will be raising prices on about 60 percent of its products. Proctor & Gamble has said it will raise prices for its baby, feminine and adult care products.

The 12-month price change of all items in selected categories is seen in the chart above. Inflation rose at a faster annual rate in May than any time since the Great Recession

Average prices for eggs (dark blue), milk (red) and ground beef (light blue) are seen over the past 20 years in the chart above

Shoppers are seen at a Vermont Costco last month. The sharp rise in consumer prices reflected a range of goods and services now in growing demand

Used cars sit on the sales lot at Frank Bent’s Wholesale Motors in El Cerrito, California in March. New car prices were up 3.3 percent on the year in May, while used car prices jumped a staggering 30 percent

The 12-month inflation rate for food (blue), shelter (purple) and clothing (gold) is seen in the chart above

Inflation saps the value of your dollar: This is how it works 

Have you ever been shopping and noticed that the prices of things you typically buy have gone up? If the items in your shopping basket cost $100 last year and now they cost $105, at a very basic level, that’s inflation. 

Prices are changing all the time but we don’t say there is inflation every time we see a price increase. 

Instead, we say there is inflation when the prices of many of the things we buy rise at the same time and then continue to rise.  

So how can we tell when inflation is happening and by how much? We do so by looking at the prices of many items over time. 

Government statistical agencies regularly gather information about the prices of thousands of goods and services. 

They then organize the prices into categories such as ‘transportation’ and ‘apparel,’ they combine the prices in each category, and they report the results in various price indexes.

Price indexes are just collections of prices. 

For example, some indexes contain the prices of items that consumers buy, and others contain the prices of items that businesses buy. 

Others contain prices only for goods, while others contain prices only for services, and so on. 

If the level of an index is higher now than it was a month or year ago, it tells us that the prices contained in that index are higher on average, which tells us there is inflation.

Source: Federal Reserve Bank of Cleveland

Restaurants have also been jacking up prices as they race to raise wages and lure potential employees back into the workforce. 

This week, Chipotle Mexican Grill announced it was boosting menu prices by roughly 4 percent to cover the cost of raising its workers´ wages. 

In May, Chipotle had said that it would raise hourly wages for its restaurant workers to reach an average of $15 an hour by the end of June. 

Inflation in restaurant prices is far outpacing food on the grocery store shelves, perhaps reflecting the added labor costs.

Last month, restaurant prices jumped 4 percent on an annual basis, compared to 2.2 percent for groceries, Thursday’s data showed. 

‘There is stronger demand for hotel rooms, air travel, restaurant dining,’ said Gus Faucher, chief economist at PNC Financial. ‘Many businesses are also facing upward pressure on their costs such as higher wages.’

Gregory Daco, chief U.S. economist at Oxford Economics, noted that in some cases, a jump in the price of goods such as autos is raising the price of car rental services.

New car prices were up 3.3 percent on the year in May, while used car prices jumped a staggering 30 percent. 

Energy prices, including fuel and electricity, were the biggest inflation driver, soaring 29 percent from 12 months ago.

Gasoline, impacted in part by the ransomware hack of the Colonial Pipeline, rose 56 percent in May from a year ago.

On Thursday, the AAA Gas Price Index pegged the national average gas price at $3.073, up from $2.071 one year ago.

With roughly 70 percent of all goods in the U.S. delivered by truck, the soaring gas prices had the potential to drive up consumer prices even further. 

‘It is going to be a muggy summer on the inflation front,’ Daco said. ‘There will be a pass-through from higher goods prices to higher prices for services.’ 

Federal Reserve faces tough choices on interest rates after insisting that inflation is merely temporary 

The inflation pressures, which have been building for months, are not only squeezing consumers but also posing a risk to the economy’s recovery from the pandemic recession. 

One risk is that the Federal Reserve will eventually respond to intensifying inflation by raising interest rates too aggressively and derail the economic recovery. 

But moving too slowly to raise interest rates, which limit inflation by putting the brakes on growth, could prove a costly mistake if the sharp increase in prices proves to be a lasting trend. 

The Fed, led by Chair Jerome Powell, has repeatedly insisted that inflation will prove temporary as supply bottlenecks are unclogged and parts and goods flow normally again. 

But some economists have expressed concern that as the economic recovery accelerates, fueled by rising demand from consumers spending freely again, inflation will continue to rise.

‘The price spikes could be bigger and more prolonged because the pandemic has been so disruptive to supply chains,’ Mark Zandi, chief economist at Moody’s Analytics, said in advance of Thursday´s inflation report.

But ‘by the fall or end of the year,’ Zandi suggested, ‘prices will be coming back to earth.’

That would be none too soon for consumers like Carmela Romanello Schaden, a real estate agent in Rockville Centre, New York. Schaden said she’s having to pay more for a range of items at her hair salon. 

But she is feeling the most financial pain in the food aisle. Her monthly food bill, she said, is now $200 to $250 for herself and her 25-year-old son – up from $175 earlier in the year.

A package of strip steak that Schaden had normally bought for $28 to $32 jumped to $45. She noticed the increase right before Memorial Day but bought it anyway because it was for a family picnic. But she won´t buy it again at that price, she said, and is trading down to pork and chicken.

‘I’ve always been selective,’ Schaden said. ‘When something goes up, I will switch into something else.’

Spiking energy prices contributed strongly to the rising inflation rate in May, following the Colonial Pipeline hack

Shoppers crowd the South Coast Plaza mall in Costa Mesa, California last month. Surging consumer demand is bumping up against labor and commodity shortages to drive up prices

Passengers are seen at the Houston airport last month. The surge in travel, dining and entertainment as pandemic restrictions lift has driven increased demand

US jobless claims fall again but 15.3 million Americans are STILL on Biden’s unemployment benefits 

Jobless claims fell by 9,000 to 376,000 from 385,000 the week before, the Labor Department reported Thursday. The number of people signing up for benefits exceeded 900,000 in early January and has fallen more or less steadily ever since. 

Still, claims are high by historic standards. Before the pandemic brought economic activity to a near-standstill in March 2020, weekly applications were regularly coming in below 220,000.

In total, more than 15.3 million Americans are still on some form of unemployment benefit, which is down from 20.8 million in February – but seven times higher than before the pandemic started. Of those on benefits, nearly 3.5 million were receiving traditional state unemployment benefits the week of May 29, down by 258,000 from 3.8 million the week before.

So far, Federal Reserve officials haven’t deviated from their view that higher inflation is a temporary consequence of the economy´s rapid reopening, with its accelerating consumer demand, and the lack of enough supplies and workers to keep pace with it. 

Eventually, they insist, the supply of commodities and labor will rise to match demand. 

Officials also note that year-over-year gauges of inflation now look especially large because they are being measured against the early months of the pandemic, when inflation tumbled as the economy all but shut down. In coming months, the year-over-year inflation figures will likely look smaller.

Still, last month, after the government reported that consumer prices had jumped 4.2 percent in the 12 months ending in April, Fed Vice Chair Richard Clarida acknowledged; ‘I was surprised. This number was well above what I and outside forecasters expected.’

And the month-to-month readings of inflation, which aren´t subject to distortions from the pandemic have also been rising since the year began.

Some economists say they fear that if prices accelerate too much and stay high too long, expectations of further price increases will take hold. 

That, in turn, could intensify demands for higher pay, potentially triggering the kind of wage-price spiral that bedeviled the economy in the 1970s.

‘The market is starting to worry that the Fed may be going soft on inflation, and that could let the inflation genie out of the bottle,’ said Sung Won Sohn, a professor of economics and finance at Loyola Marymount University in Los Angeles.

In April, the price of used cars and trucks jumped a record 10 percent. Hotel and motel prices also set a monthly record. 

Tickets for sporting events and home furniture surged, too, along with TVs, audio products and smart home devices. So did the cost of toys, games and playground equipment. Fares for Uber and Lyft are up, too.

Rising commodity costs are forcing Americans to pay more for items from meat to gasoline. 

Prices for corn, grain and soybeans are at their highest levels since 2012. The price of lumber to build homes is at an all-time high. 

More expensive commodities such as polyethylene and wood pulp have translated into higher consumer prices for toilet paper, diapers and most products sold in plastic containers. 

Half of the 50 states – all led by Republicans – are refusing a federal boost to unemployment benefits in an effort to push jobless workers back into the job market. A labor shortage is contributing to inflation 

This week, Chipotle Mexican Grill announced it was boosting menu prices by roughly 4% to cover the cost of raising its workers´ wages as the chain tries to attract more employees. Above a Texas Chipotle is seen on Wednesday

Biden’s soak-the-rich giveaways could overheat an economy that’s already booming – and send inflation SOARING 

By Emily Crane for DailyMail.com 

President Joe Biden ‘s plan for a $6 trillion spending spree could risk overheating a US economy that is already rebounding from the COVID-19 pandemic and send inflation spiraling out of control.

Biden has announced three major tax and spending proposals that he argues will boost the economy, including the $1.9 trillion American Rescue Plan to give COVID-19 aid that already passed in the Senate .

He also laid out plans for a $2.3 trillion American Jobs Plan and an American Families Plan worth $1.8 trillion at a time when national debt is at its highest level in 76 years.

The Biden Administration argues its spending spree can boost the economy without negative side effects, but economists – both liberal and conservative – are warning it’s a gamble.

Many argue the already surging economy is now expected to expand so fast that it could ignite inflation, which is the measure of price increases of goods, like food and gasoline.

Federal Reserve Chair Jerome Powell has already insisted that he can keep inflation under control and said any surge will be temporary.

But some economists warn the price tag will be high if the Biden administration and Fed are wrong.

‘A major problem with Biden’s budget policy is that it could soon lead to an overheating of the US economy and a return to higher inflation,’ Desmond Lachman, a resident fellow at the American Enterprise Institute, said in a statement to DailyMail.com.

The Biden Administration believes its $6 trillion spending spree plan can boost the economy without any negative side effects but economists, both liberal and conservative, are warning it is a gamble that could trigger inflation

Sung Won Sohn, an economics expert at Loyola Marymount University, told the Washington Post: ‘The philosophy behind the Biden administration is everyone can have more. We can have the cake and eat it, too. There is no price to pay in terms of inflation, higher interest rates or slower growth. 

‘If they are wrong, the price tag will be pretty high.’ 

Biden’s plans, which would see tax hikes for the rich and corporations in order to pay for it, will provide a significant boost for lower-income Americans.

There are concerns, however, that such a large stimulus will cause the economy to overheat and result in rapid price increases. 

These price increases could make it difficult for lower-income Americans to afford goods, which could force the government to slow growth in a bid to control inflation. 

Inflation means the ongoing increases in the prices of goods and services. Some inflation is good – as everyone wants a higher paycheck, for instance – but when it rises too quickly, paychecks don’t keep up with price rises. 

It also erodes the value of every dollar an American makes, which means any money they have saved becomes worth less. 

In the late 1970s and early 1980s in the US, inflation was so out of control at an annual rate of 14.8 percent that the Federal Reserve, which was chaired at the time by Paul Volcker, had to step in and raise the country’s key interest rate sharply.

The so-called ‘Fed Funds’ rate is essentially the rate at which banks can borrow from each other – and it affects everything from car loans to home mortgages.

When Volcker yanked the federal funds rates up to 20 percent, it tamed inflation, which fell to 3.2 percent by 1983. But it also slammed the brakes on growth and sent the economy into a recession. (For comparison, the federal funds rate is now set to zero – allowing ‘cheap money’ to flow into the economy.)

His actions triggered the worst economic slowdown since the Depression, though that has now been eclipsed by the 2008-9 financial crisis. Businesses and farms declared bankruptcy and unemployment soared beyond 10 percent. 

But that’s the fear here: that things will get so out of control that the Fed will once again have to increase key interest rate and potentially ruin the economy for a generation. 

‘There is a growing awareness on Main Street that inflation is a problem,’ R. Christopher Whalen of The Institutional Risk Analyst said. 

‘Everybody knows about the run-away markets for financial assets and single-family homes. It seems that the stocks with the least substance are likely to benefit the most in the current interest rate environment. 

‘But vendors and suppliers are starting to raise prices in the face of scarcity in supply chains, the precursor to a significant increase in inflation.’ 

Douglas Mackenzie, who lives in Phoenix, told Politico he was already noticing price hikes while out on the road. 

‘Inflation is real – restaurants, barbers, groceries, fuel, and beer – all have had prices soar upwards of 10 percent or more since January. Have you bought a glass of wine out there for less than $14?’ he said.  

The Labor Department reported wholesale inflation spiked to its highest yearly rate in nearly a decade last month. 

Yet Biden’s plan to dramatically raise taxes to usher in a wave of new social programs comes as the economy is already zooming ahead.  

Economic growth accelerated in the first quarter on 2021, growing at a brisk 6.4 percent annual rate, the Commerce Department announced on Thursday.

It followed a 4.3 percent growth rate in the fourth quarter of 2020.  

The strength of the rebounding economy is striking given how much damage the COVID-19 pandemic inflicted starting in March last year.

As businesses were forced to shut down, the economy contracted at a record annual pace of 31% in the April-June quarter of last year before rebounding sharply in the months that followed. 

Economists expect the economy to expand close to 7 percent in 2021, which would be the fast calendar-year growth in nearly 40 years.

Growth was powered by consumer spending, which increased at a 10.7 percent rate as households bought motor vehicles, furniture, recreational goods and electronics. 

Consumer spending, which accounts for more than two-thirds of economic activity, had slowed to a 2.3 percent annual gain in the final three months of last year. 

Former President Donald Trump’s administration provided nearly $3 trillion in relief money early in the pandemic, which lead to record GDP growth in the third quarter of last year.

It was followed by nearly $900 billions in additional stimulus in late December.

The Biden administration then offered another $1.9 trillion rescue package in March.  

While the labor market recovery is back on track, it is likely to take a few more years to recover the more than 22 million jobs lost last year. 

The rapidly accelerating economy could dampen enthusiasm among some moderate Democrats for Biden’s ambitious economic agenda. 

Biden’s total new spending commitments total $6 trillion and he is now facing questions over whether tax rises he proposes will be enough to cover the ambitious plans he needs to put through Congress. 

The $1.9trillion American Rescue Plan that gave aid to Americans amid the pandemic has passed through Congress and is already part of the federal budget. 

The American Jobs Plan and the American Families Plan he has proposed will cost a total of $4.1 trillion and still needs Congressional approval.

Republicans are opposing more stimulus over fears about swelling debt.  

In order to pay for the second two plans, the president announced a series of tax initiatives including almost doubling capital gains to 39.6 percent and hiking the rate for the top one 1 percent of income earners to 38.6 percent.

He would also push corporate tax rates from 21 percent to 28 percent, impose a global minimum tax on corporations and will give the IRS $80billion to chase town tax evaders – which he says will generate $700billion in net revenue over 10 years.

According to experts at The Tax Foundation, Biden’s tax increases announced in Congress on Wednesday would raise an estimated $2.37 trillion.

Their analysis of Biden’s taxation plans in full project that his planned taxes will raise a total of $3.3 billion – however this is subject to many factors including the performance of the economy.

Biden also intends to crack down on multinationals, forcing US firms that make money overseas and companies who use offshore businesses to pay significantly more in taxes under his ‘Made in America’ tax plan.

The looming gap between Biden’s spending ambitions and the projected tax revenues raises the prospect that the President could resort to further borrowing to cover his spending.  

www.dailymail.co.uk

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