Inflation Surged 7.5% In January, Reaching 40-Years High In USA: Demands Impacted

In the USA, the consumer price index has increased by 7.5% in January 2022, since the past 12 months, which is the highest in the last 40 years, according to the Labor Department. This hike in inflation can influence the US Federal Reserve to increase its interest rate by 50 basis points. In January, the CPI has increased by 0.6% from December's data.

As an immediate impact, in the Wall Street retreated, tech stocks went down around 1.2%. Additionally, the Dow Jones Industrial Average dropped by 146.32 points, or 0.41%, to 35,621.74. The S&P 500 dropped by 24.43 points, or 0.53%, to 4,562.75, while the Nasdaq Composite dropped 78.71 points, or 0.54%, to 14,411.66, at a point of time.

Earlier, the hike in the inflation rate was anticipated to be transitory, however, later analysts realized that due to the pandemic and supply-chain bottleneck, this is going to leave a long-term impact on the economy. Common citizens are showing lesser demand drive and According to available reports, in the last year, prices have increased 40% for gasoline, 18% for bacon, 14% for bedroom furniture, and the loss goes on. On the other hand, due to lockdowns, employment generation and wages have suffered massively in the past two years. Only in the last January, this has improved sharply. Hence, with inflationary pressures and unemployment, demands have fallen significantly.

Economists, polled by Reuters anticipated that the CPI in the USA increase by 0.5%, and accelerate 7.3% YoY. Considering this, Jim Baird, chief investment officer at Plante Moran Financial Advisors commented, "Inflation remains the single largest near-term challenge to the economy."

This is directly impacting the asset markets, and the gold price jump is an example. Gold rates have been gaining in the recent period aggressively. This will continue till the US Fed decides to hike the interest rate in March. Gold is a hedge against inflation and with a hike in the inflation rates, gold markets across the globe is booming.

The US Fed has been trying to restrict the inflation rate to 2% since 2021, but the central bank has failed. Consistent liquidity infusion in the economy and keeping the interest rate at near-zero are the two major reasons behind it.