Recovery Sputters As Inflation Rages In U.S., Europe

Inflation has reached new highs in the United States and Europe as rising energy prices and supply bottlenecks restrain an economic recovery from the pandemic in both economies, Christopher Rugaber and David McHugh reported for the Associated Press (AP).

Photo Insert: Several economists have consequently reduced their forecasts for growth in the July-September quarter to a still-healthy 3% annual rate, down from 6.7% in the April-June quarter.

The US Commerce Department reported Friday that prices rose 4.3% in August from a year earlier. While only slightly higher than the previous month, it was still the largest annual increase since 1990. Energy costs have jumped nearly 25% in the past year, while supply backlogs have pushed up prices for cars, furniture, and appliances.

In the 19 countries that use the euro, inflation increased to 3.4% in September, from 3% in August, the statistics agency Eurostat said Friday. That’s the highest since 2008.

Energy prices have risen 17% in the past year, led by natural gas and electricity. Such price gains can erode workers’ purchasing power and have complicated President Joe Biden’s ambitious spending plans, as well as raised pressure on central bank leaders in the US and Europe.

The Commerce Department did report Friday that US consumer spending rose at a healthy 0.8% in August despite a surge in COVID-19 cases, after slipping 0.1% in July. That suggests that ongoing hiring, rising pay, and government payouts such as the new child care tax credit are fueling more spending and could boost the economy in the coming months.

Americans bought more furniture, clothes, and groceries in August, though the delta variant appeared to lead to a pullback on traveling and eating out. Yet the government revised spending in July much lower, from a 0.3% gain to a 0.1% decline.

As a result, several economists reduced their forecasts for growth in the July-September quarter to a still-healthy 3% annual rate, down from 6.7% in the April-June quarter.

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