Inflation Rise to Damp Strong Job Numbers, Wage Gains, US Economists Predict

Inflation is projected to squeeze the US economy even further, thus justifying the Federal Reserve's decision to raise interest rates to bring inflation under control. The International Monetary Fund has warned Washington that in a modern globalised world, the US should tread carefully to prevent potential debt crises among low-income economies.

The consumer prices index (CPI), which is due to be released on 10 February, is expected to show year-on-year growth of 7.3 percent, the largest annual spike since early 1982, according to Bloomberg economists.

US stock futures slid on Monday as investors braced themselves for publication of the new inflation data: S&P 500 futures fell 0.19 percent, Dow Jones futures were 0.23 percent lower, and the Nasdaq 100 futures slipped 0.16 percent as of 5.25am ET, according to Markets Insider.

The GOP and some financial experts are continuing to blame soaring inflation on the Biden administration's economic strategy, including the president's energy policy and "spending spree", which includes stimulus measures and a bipartisan infrastructure Bill passed last year. NBC's January 2022 poll indicated that 60 percent of Americans disapproved of the US president's handling of the economy, whereas only 38 percent approved.

The CPI prognosis comes on the heels of the Labor Department's report which revealed a whopping 467,000 job gains in January 2022. The figure substantially exceeds an earlier 150,000 job gains forecast by American economists. In addition to that, workers’ hourly pay has grown by 5.7 percent over the past year. According to the Bureau of Labor Statistics, the average wage reached $31.63 per hour in December 2021.

The Financial Times suggested on 5 February that strong US jobs numbers and surging payrolls could "vindicate" Biden’s economic record and "help to undercut Republican attacks".

However, critics are pouring cold water on the recent developments: despite adding 467,000 jobs last month amid the Omicron surge "the US is still missing roughly 5 million pre-pandemic jobs," Fortune points out. At the same time, soaring inflation is continuing to push the price of commodities such as gasoline, clothing and food substantially higher thus eating into the newly announced wage gains.

To halt the inflation race, the US Federal Reserve is due to start raising interest rates from March 2022. Fox News notes that the latest jobs report "probably solidified the Fed's plans to raise rates next month," as it showed the US economy's resilience amid the COVID-19 pandemic.

IMF Managing Director Kristalina Georgieva and World Bank President David Malpass at the World Bank/IMF Annual Meetings in Washington

© AP Photo / Jose Luis Magana

Although the increase in US rates may help the Fed to arrest inflation, it could also have significant implications for countries with higher levels of dollar-denominated debt, as Kristalina Georgieva, managing director of the International Monetary Fund, warned at the Davos Agenda summit in January 2022.

According to Georgieva, two-thirds of low income countries are now either in "debt distress" or at risk of falling into it. The managing-director of the IMF called upon the US Fed to communicate its plans clearly to avoid surprises for the world's economy.

Nevertheless, "the risk of the Fed surprising the market with more aggressive action at some point in 2022 isn’t going to be ruled out," CNBC highlighted on 6 February.