Inflation in the US has risen faster than expected, disappointing bankers and investors. Inflation stood at 9.1 percent in June, up from 8.6 percent a month earlier.
Economists on average expect 8.8 percent. Inflation in the US is driven mainly by a sharp rise in energy prices due to the war in Ukraine, but also by higher prices for food and other commodities and goods. High inflation undermines the purchasing power of American households.
To deal with high inflation, the central bank raises interest rates. Last month, the central bank raised interest rates by 0.75 percent, the biggest rate hike since 1994. The central bank may raise interest rates again by three-quarters of a percentage point later this month. It is feared that these interest rate hikes will lead to an economic recession in the United States.
For Joe Biden, fighting inflation is a key means of reviving his popularity. Its popularity is particularly low, with all the rising consumer prices hitting households hard. Biden has already released oil from strategic reserves to lower fuel prices at the pump. He has also criticized major oil companies for not doing enough to counter high oil prices.
America’s handling of high inflation with more aggressive interest rate policy is now causing headaches in Europe. Due to higher interest rates in the US, the euro has depreciated against the dollar. European interest rates are still relatively low, making the dollar a more attractive means of payment and savings. On Tuesday, the Euro-Dollar exchange rate reached equilibrium, with the Euro forming a par with the Dollar. It was the first time in twenty years that the milestone had been reached.
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