After a period of decline, inflation in the US and other major economies may rise again due to the increasing costs of gasoline and food, according to a report by The Wall Street Journal. The report cites the latest data from the US Labor Department, which showed that consumer prices rose 0.5% in July from a month earlier, the largest increase since March. The annual inflation rate was 5.4%, unchanged from June and the highest since 2008.
Gasoline Prices Surge Amid Global Demand and Supply Disruptions
One of the main drivers of inflation in July was gasoline, which rose 2.4% from June and 41.8% from a year ago. The report attributes the surge in gasoline prices to several factors, including:
- The rebound in global demand for oil as economies reopen after the pandemic lockdowns.
- The production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, which have limited the supply of crude oil in the market.
- The geopolitical tensions in the Middle East, especially the ongoing conflict between Iran and Israel, which have raised the risk of supply disruptions.
- The extreme weather events, such as hurricanes and wildfires, which have affected the refining and distribution of gasoline in some regions.
The report warns that gasoline prices may remain high or even increase further in the coming months, as demand is expected to peak during the summer travel season and supply may face more challenges.
Food Prices Climb Due to Weather and Transportation Issues
Another major contributor to inflation in July was food, which rose 0.7% from June and 3.4% from a year ago. The report points out that food prices have been affected by various factors, such as:
- The droughts and floods in some parts of the world, which have reduced the output of crops and livestock.
- The labor shortages and higher wages in the agricultural sector, which have increased the cost of production and harvesting.
- The rising transportation costs, due to the higher fuel prices and the shortage of truck drivers and shipping containers.
- The higher demand for food, especially for meat and dairy products, as consumers shift their preferences after the pandemic.
The report notes that food prices may continue to rise in the near future, as some of the weather and transportation issues are likely to persist or worsen.
Inflation Outlook Remains Uncertain
The report concludes that inflation outlook remains uncertain, as there are both upward and downward pressures on prices. On one hand, some of the factors that have pushed up inflation in recent months may ease or reverse in the longer term, such as:
- The base effects, which reflect the low prices during the pandemic last year and exaggerate the annual inflation rate.
- The supply bottlenecks, which may be resolved as production and distribution catch up with demand.
- The fiscal stimulus, which may fade as government spending and income support programs wind down.
On the other hand, some of the factors that have kept inflation low in previous years may change or disappear, such as:
- The globalization, which may be disrupted by trade wars, protectionism and geopolitical conflicts.
- The technological innovation, which may slow down or face regulatory hurdles.
- The demographic trends, which may shift as aging populations increase their spending and reduce their saving.
The report suggests that policymakers and investors should monitor the inflation data closely and be prepared for different scenarios.
