The US Fed’s latest projections have inflation rising to 3.4 percent in 2021, a full point higher than March’s estimate.
Another dose of data is signalling that the United States labour market continues to rebound from COVID-19 as business around the country scramble to hire workers for open positions.
The number of Americans applying for unemployment benefits with states fell by 26,000 last week to 360,000, the US Bureau of Labor Statistics said on Thursday. That is the lowest reading for weekly jobless claims – a proxy for layoffs – since March 14, 2020. But it is still elevated from the pre-pandemic level of around 220,000.
The four-week moving average for jobless claims, which smooths out some of the noise in the data, fell by 14,500 to 382,500 – also the lowest level since March 14, 2020.
The total number of people collecting unemployment benefits – a metric known as “continuing claims” – was 3.24 million for the week ending July 3, a decrease of 126,000 from the previous week’s revised reading.
The fall in jobless claims comes amid worker shortages in pockets of the economy as coronavirus vaccination rates continue to increase, consumers flush with savings unleash pent-up demand and businesses gear up operations to meet it.
Some businesses have offered pay bumps and signing bonuses to entice job candidates to fill open positions. And some firms are passing those increased labour costs on to consumers by charging more for goods and services.
Prices of raw materials are also spiking as bottlenecks form in supply chains.
All of that is feeding inflation that is breaking records in the US. Earlier this week, government data showed that the prices businesses fetch for finished goods and services posted their largest annual increase on record last month, while prices consumers pay for goods saw their largest annual gain since 2008.
The inflation surge is sparking concerns that the US economy could fall prey to a vicious upward price spiral that would force the Federal Reserve to hike interest rates sharply and slam the brakes on the nation’s economic recovery.
But Fed Chairman Jerome Powell is not worried about that happening. On Wednesday, he repeated what he’s been saying for months: that in the Fed’s view, the current wave of inflation is temporary and he and his fellow policymakers are committed to keeping a lid on borrowing costs until the US jobs market is fully healed – even if that means tolerating a period of elevated inflation.
In May there were a record 9.2 million job openings in the US, while in June there were 9.5 million unemployed Americans who were actively looking for work.
In response, dozens of states have decided to pull out of federal unemployment benefit programmes before they end in early September. Those programmes include a $300-a-week federal top-up to state unemployment benefits that some are blaming for disincentivising the jobless to find work.
But economists site other factors at play, including fear of contracting COVID-19, ongoing childcare challenges during the pandemic, people opting for early retirement and bottlenecks for certain types of labour as businesses ramp up en masse.