Bay Area consumer prices skyrocket and remain at 21-year highs

Consumer prices in the Bay Area skyrocketed in April and nearly matched the annual increase posted in February, which was a 21-year high, a grim new government report revealed on Wednesday.

The Bay Area inflation rate jumped at an annual pace of 5% in April, the U.S. Bureau of Labor Statistics reported on Friday.

The yearly increase in consumer prices in April was only slightly lower than the 5.2% annual rise that the government reported for the Bay Area in February, the federal agency reported.

The increases posted so far this year were the highest since mid-2001, according to this news organization’s analysis of government reports stretching back to 1990.

Costs for food such as meat, poultry, fish, cereal and dairy products, along with massive increases in gasoline prices and sharp jumps in monthly PG&E utility bills, coalesced to shove the Bay Area annual inflation rate higher by 5% in April.

Nationwide, the annual inflation rate reached 8.3% in April, a pace that remained near a 40-year high, the government reported.

Consumers and borrowers now face a double whammy of soaring prices and rising interest rates.

The Federal Reserve last week raised interest rates by a hefty percentage point. Frequent interest rate increases loom because The Fed is alarmed that inflation could morph into a runaway spiral.

Officials with the Central Bank are betting that a steady diet of increases in interest rates will help to choke off the surge in consumer prices. But the interest rate hikes also might throttle economic activity and job growth.

But it’s possible that the Federal Reserve’s actions might be inadequate, Christopher Thornberg, an economist and founding partner with Beacon Economics, warned in a blog post this week.

“The only way to cure current inflation is for the Fed to pull out the cash they put in, something on the order of $4 trillion in quantitative tightening,” Thornberg said.

Too much money has been pumped into circulation through an array of endeavors, such as the Fed’s program of quantitative easing to stimulate the economy through Central Bank purchases of Treasury notes, bonds and other financial assets, according to Thornberg. The Fed’s efforts have caused the money supply to balloon.

Even worse, the Fed’s efforts to increase short-term interest rates won’t go far enough and the Fed’s other tightening efforts might arrive too late, Thornberg warned.

“The baby steps they announced suggest it will take four years before $4 trillion is fully withdrawn, and this will be after prices have already surged another 20%,” Thornberg said.

The nation could be headed for its most dire economic scenario since the 1970s, when a jobs slump and sky-high interest rates menaced the economy simultaneously, a rare but devastating phenomenon called stagflation.

“The U.S. economy is overheating, over-spending, and over-inflating,”  Thornberg said. “It’s like careening down a hill in a car at 120 miles per hour, headed straight for a parked truck, but worrying about tapping the brakes too hard because you don’t want the car to slide.”

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