Shock surge in US inflation heightens rate rise fears

Big rises in prices for travel, including air fares, and used cars all boosted inflation.

The figures will add to the fierce debate dividing economists over whether post-Covid inflation will be temporary or become more entrenched and dangerous. 

Ambrose Crofton, global market strategist at JP Morgan Asset Management, said: “Many of the price increases in areas most affected by the reopening are likely to temper in the coming months. But some components of today’s report raise the prospect that underlying inflationary pressures are set to linger longer than most expected.”

Inflation is being stoked by supply chain constraints and a jolt to demand caused by a reopening economy and government stimulus. The Fed slashed interest rates to near zero in response to the pandemic last year but some fear policymakers will need to hike borrowing costs early to rein in inflation.

James Knightley, an ING economist, said the latest jump in inflation “heaps pressure on the Fed” and made a stronger case for a 2022 rate rise.

“Yet another blowout inflation reading makes it increasingly difficult for the Fed to stick to its position that elevated inflation readings are merely ‘transitory’,” he said. “Pipeline cost pressures continue to build and corporates are looking to pass them onto customers in an environment of such robust demand.”