(Bloomberg) – U.S. consumer inflation is running at its fastest pace in nearly 40 years, increasingly driven by rising wages and import prices, according to a new study The impact comes from the Federal Reserve Bank of New York.
“We find that the pass-through of wages and input prices to the U.S. producer price index has increased during the pandemic,” authors Mary Amiti, Sebastian Heise, Fatih Karahan and Aysegul Sahin reported Tuesday in said in an article on the bank’s website. “These large changes in costs and higher pass-through to domestic prices have resulted in higher inflation.”
The Federal Reserve is rapidly raising interest rates in response to price pressures, with 75 achieved a basis point hike at each of its last two policy meetings, and may see another hike when officials meet next month.
Consumer prices rose 8.5% in the year to July, slightly less than expected but still well above the Fed’s forecast. It targets 2 percent inflation, as measured by another measure called the Personal Consumption Expenditure Price Index, which climbed 6.8 in the 12 month to June %.
Research finds that the recovery in commodity inflation in the current economic expansion is the strongest since the 1970 years, with recent acceleration in service prices. It also highlighted rising wages, especially in service-providing industries, linked to a tight labor market, with the unemployment rate falling to 3.5 percent last month, the lowest level in five years.
“Our results suggest that import input prices and wages have had a significant impact on U.S. domestic prices in recent months,” the authors write. “This large impact stems from their relatively large growth and higher pass rates.”
They also found that prices in the trading sector were more correlated with foreign competitors’ prices, “large Most probably because all companies are going through the same shock.”
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