Thursday, June 15, 2023, June 15, 2023 WIB
Last Updated 2023-06-15T23:13:03Z
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Horrible! Not Just Inflation, America Is Facing Greedflation

Photo: The American flag hangs outside the New York Stock Exchange in New York (AP/Frank Franklin II)

The trend of rising interest rates in the US is far from over, as the country's central bank, the Federal Reserve (the Fed), has signaled that there may be additional hikes later this year. While the benchmark rate remains at a range of 5%-5.25%, the Fed's dot plot suggests that interest rates could be increased to 5.6% or range between 5.5%-5.75%, potentially resulting in two more 25 basis point increases.

The Federal Reserve has not only increased interest rates but plans to maintain them at high levels for a long time, according to its Chair, Jerome Powell. Powell stated that the cutting of interest rates will be done correctly when inflation decreases significantly, and again, they are talking about several years ahead. The Fed's aim is to bring inflation back to its target of 2%, which appears increasingly challenging, and hence the need to keep interest rates high for a considerable period.

The rise in the consumer price index (CPI) in May is recorded at 4% year-on-year (YoY), already decreased by more than half when it peaked at 9.1% in June 2022, the highest level in 40 years. Meanwhile, core inflation, which does not include the energy and food sectors, has grown by 5.3% YoY. This type of inflation is more persistent and difficult to control.

Personal consumption expenditure (PCE)-based inflation rose to 4.4% YoY in April, up from the previous month, and core PCE-based inflation rose to 4.7% from its previous 4.6%.

The Fed is not only facing inflation but the phenomenon of greedflation, where companies raise their product prices due to inflation and gain higher profits. This increase is especially prevalent in the consumer sector, as revealed by Accountable.US, as per Market Watch reports. Despite high-interest rates, companies in the S&P 500, especially the food industry, continue to raise consumer prices, even after generating billions of extra US dollars in revenue, according to Liz Zelnick, http://Accountable.US director, as per Market Watch on June 14, 2023.

Despite the rise in prices, the strong US labor market is also supported by an increase in average wages. In the early part of this month, the US Department of Labor reported 339,000 non-farm payrolls jobs were absorbed by the economy in May, far higher than the predicted 190,000. Dow Jones' notes indicate that job absorption has surpassed expectations for 29 consecutive months.

Although the unemployment rate increased to 3.7%, it is still near the lowest level since 1969. Hourly wage growth is still robust, reaching 4.3% YoY. Thus, while companies raise prices for food and drinks, consumers in the US can still buy