Fed Vice Chair: "Inflation Due to Base Effects and Temporary"‥White House: "Because of Used Car Prices"

Clarida Vice Chairman "Noise in Economic Indicators" "Long Time to Achieve Targets"
White House Spokesperson "Temporary Rise Expected for Several Months/Quarters" "Price Increase Due to Semiconductor Shortage"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Although U.S. inflation has surged to its highest level in 13 years, Federal Reserve (Fed) officials once again drew a line against early normalization of monetary policy. The White House also judged the sharp rise in inflation to be due to supply chain issues, stating that it was an expected situation during the process of a major transition.

Richard Clarida, Vice Chair of the Fed, said in a speech on the 12th (local time) after the release of the April Consumer Price Index (CPI), "The April CPI far exceeded my expectations, and I was surprised by the inflation indicators," emphasizing that the CPI is one of the indicators like the employment report.

The April CPI released that day rose 4.2% year-on-year, significantly surpassing the market expectation of 3.6%. The core CPI also exceeded expectations at 3%, compared to the forecast of 2.3%.

Vice Chair Clarida stated, "There is considerable noise in the economic indicators coming out now," and emphasized, "It would be prudent and appropriate to gather additional evidence before a policy shift." He diagnosed that the economic phenomena occurring after the COVID-19 pandemic would be significantly different from the past.

Clarida further predicted, "The price increase is a base effect and is likely to have only a temporary impact." He expected inflation to recover to a level slightly above the Fed's long-term target of 2% in 2022 and 2023.

He also explained, "While the rise in inflation is likely temporary, if it continues to rise, the Fed will not hesitate to take action."

Clarida forecasted, "The economy is far from our goals, and it will take time to make significant progress," adding, "It will only be in August 2022 that pre-pandemic employment levels can be recovered."

Jen Psaki, White House Press Secretary, who said the day before that they take the inflation rise seriously, stated at a briefing that day, "We have anticipated a temporary rise in inflation for several months or quarters."

She added, "The price increase is something we have prepared for, and most economists say it will be temporary."

Psaki pointed out that a significant part of the reason for the sharp rise in the CPI was the increase in used car prices and argued that the shortage of semiconductors limiting new car supply caused the price rise. Used car prices surged by 10%, which had a considerable impact on the CPI soaring beyond expectations.

She also explained that compared to before COVID-19, prices for airfare and hotels are lower, making it easier for Americans to travel, which she described as a good sign.

This content was produced with the assistance of AI translation services.