Key facts:
Inflation for the first three months is 7.66% on average.
With the figures up to March, 2022 inflation is headed for double digits.
After the publication of the United States Consumer Price Index for March this year, which revealed a record inflation of 8.5% in the last 12 months, expectations about total inflation for 2022 have increased.
The increase in interest rates by the United States Federal Reserve, on March 16, represented a radical change by the regulator with respect to the monetary expansion policy that had begun in March 2020.
By raising rates, the Fed tried to restrict credit and encourage saving, with the intention of curbing inflationsince this had begun to grow well above the 2% that had been set as a goal in 2020. According to its last meeting on March 16, the Fed estimates that inflation for 2022 will be in a range between 4.1% and 4.7%, which is more than double the previous goal of 2%.
Towards double-digit inflation in the US
Taking into account the increases in the CPI of January, February and March 2022; of 7.5%, 7.87% and 8.53%, respectively, the increase of this index in the first quarter is 13.73%. In the event that a similar increase occurs in the rest of the year, Inflation for the year 2022 will be 12.54%, three times that forecast by the Fed.
In addition to the anticipated gap between the Fed’s expectations and the monthly inflation figures, there are other indicators of the impact of inflation on consumers, when the increases in the different items that make up the basket of products and services.
Although in March of this year, the increase compared to March 2021 was 8.53%, food consumed at home increased 10%, and energy expenses increased 32%. Among energy products, gasoline registered an increase in March of 48% and electricity 11%.
Advertising
The March report it is the first to take into account the impact of the Russian invasion of Ukraine on the cost of living in the United States. It is also the first time in 2022 that the food and energy items have had double-digit annual increases.
Can the dollar rally be sustained?
The index, which measures the US dollar against a basket of major currencies, has gained 4.74% since the beginning of the year and its momentum has been maintained to the extent where the conflict deepens between Russia and Ukraine. From a value of 89 in January 2021, the dollar is above its reference value and reaches 100.74 at the time of writing this article. This is the highest value reached since April 2020.
Investors’ anxiety when the invasion of Ukraine began led them to seek assets that are perceived as safer, including gold, US treasuries, bitcoin and the US dollar.
Advertising
The latter still enjoys its status as a world reserve currency.. The Wall Street Journal points out that, in the search for the dollar as a refuge, its status as a currency perceived as stable is half of what is called “the smile of the dollar”. The other half is associated with a strong economy in the United States, compared to other countries.
With inflation figures averaging 8% in the first quarter, that second half of the “dollar smile” might not hold. As seen in the chart above, the 2022 US inflation forecast is in line with what the Fed expects, but it remains to be seen whether rising interest rates can reverse the monthly rise we’ve seen so far.
In addition, according to the opinion of several analysts, the dollar is going through a moment of weakness as a world reserve currency, with potential contenders such as the yuan and bitcoin (BTC), as reported by CriptoNoticias. If this crisis of confidence materializes, this can also affect its long-term value by collapsing another of the cores of its common use. The passage of time will be who will give the definitive answer.