Following a high inflation rate reflected by the CPI report, US Treasury Secretary Janet Yellen reveals the country's plan of action to fight the record high inflation.
Consumer Price Index (CPI) showed a substantial increase of 9.1 percent, which is an unprecedentedly high amount since November 1981. Prices jumped 1.3 percent in a month from May. Both figures are higher than forecast by economists from Refinitv, which was 8,8 percent and 1 percent respectively. This highlights an increased inflationary pressure on the current economy.
According to Yellen, the US Government is hoping to provide some of the much-needed relief to American households with a reconciliation bill that is expected to reduce the price of prescription drugs and release the nation’s emergency oil stockpile.
The current inflation rate is currently the most rapidly increasing in four decades, this creates a negative sentiment towards the economy as it drives prices of goods ever higher.
Policymakers along with the Federal Reserve have raised interest rates by 75 points and have expressed that another rate hike is on the table. According to economists, an increase of 1 percent in July’s inflation report is more than likely.
Republicans have argued that the massive COVID-19 stimulus package is the cause of the accelerated inflation. The assumption was then followed by Federal Reserve raising the rates could hike the price even further.
When asked about the Federal Reserve’s action possibly causing the inflation, Yellen responded by saying that the battle against inflation is a “top priority” and claimed that the labor market is still in full swing despite Federal Reserve’s policy.
Biden’s administration placed the blame on energy costs to Russia, which they have also blamed for exacerbating the inflation. However, it is noted that energy prices were already increasing prior to the Russia vs Ukraine conflict and the following US-led sanctions, pointing to a direct correlation to Biden’s policies that restrict domestic oil circulation and shutting down the Keystone XL pipeline.
Wild energy prices
According to inflation data, nearly half of the price increase is a consequence of high energy costs. Energy prices have increased 7.5 percent in June from the previous month, and are up a total of 41.6 percent from last year.
“The issue we have today is not only are gas prices high, but that that is being driven by the amount of profit oil companies are generating is at a historic high,” said Brian Deese, Director of White House National Economic Council.
Deese further indicated that one contributor to the price increases is the fact that oil companies taking a higher profit on their product. The President has been in talks with these companies for months, and some have shown good faith. The US-based oil companies are expected to re-invest their profits in order to bring more refineries online, this is done not only to account for the lack of Russian Oil but also to bridge the slow transition towards greener and more sustainable energy sources.
However, the president is willing to use the tools in the federal government to reach a fair conclusion for everyone, in the essence of practicality. In addition, to further anticipate the hike, Biden’s administration is also placing a price cap on Russian oil to avoid future spikes in oil prices.