Inflation seeps through US economy

Enci Li, a restaurant owner in New York, is feeling the pinch of inflation.

"Some of our old customers … left us because we raised our prices on the menu. People know that prices are rising everywhere, so many of them will not choose to eat in restaurants now. We lost some customers like that. Even if they still choose to come, some of our customers feel they get overcharged, so they tip us less," Li told China Daily.

Li faces another challenge as the restaurant industry in particular is having trouble finding and retaining employees. He said that his employees frequently ask for raises, otherwise they will leave.

On Wednesday, US Federal Reserve officials forecast that inflation will run hotter than previously expected this year and projected slower economic growth.

The projections came as the US central bank finished its two-day policy meeting. Officials on the policymaking Federal Open Market Committee see inflation moving higher than it was projected in June.

Despite rising inflation, the Fed said interest rates will remain at 0 percent to 0.25 percent, the same level they have been at since March 2020.

Core inflation, the rise in the costs of goods and services, excluding food and energy, is projected to increase 3.7 percent this year, compared with a previous 3 percent forecast.

Including food and energy, officials predicted an annual inflation rate of 4.2 percent by year's end, up from 3.4 percent they forecast in June. Inflation is expected to cool to about 2.3 percent next year, compared with the previous projection of 2.1 percent, and 2.2 percent in 2023, one-tenth of a percentage point higher than the June forecast.

For restaurant owners like Li, the rising price of food presents another challenge.

"The price of enoki mushroom has risen the most ridiculously. In March, I could buy two bundles of enoki mushroom for one dollar, sometimes three. Yesterday when I went to the grocery store, I saw that one bundle of enoki mushroom costs three dollars," said Li.

Inflation means that customers will have to spend more money than they did before to purchase the same items. Those who are holding cash or who are on a fixed income that is not inflation-adjusted annually are impacted the most.

"The rising rate of my income cannot keep up with the rate of inflation," Kun Qian, a software engineer in California, told China Daily.

"All of this means your paycheck is not going as far as it once did unless your wages are increasing at the same pace, which has not been the case for most individuals," Steven Saunders, director and portfolio adviser at Round Table Wealth Management, told CNBC.

Inflation in the US has now accelerated to a three-decade high. The Fed's preferred inflation measure — the personal consumption expenditures index minus food and energy prices — accelerated by 3.6 percent in July — the sharpest such increase since 1991.

The latest data showed US consumer prices were up by 5.3 percent this year as of August, slightly down from the 13-year high of 5.4 percent in July.

Inflation in the US right now is being driven by a few overlapping factors resulting from the COVID-19 pandemic: low interest rates set by the Federal Reserve, several rounds of direct government stimulus payments to both consumers and businesses, and pent-up consumer demand that is being unleashed as the US economy reopens.

All of those factors led to demand outpacing supply, causing shortages and price hikes in categories of goods including semiconductor chips, used cars and housing.

During the pandemic, many low- and moderate-income families received stimulus checks, and these checks helped them to pay down debt. However, as these checks have been distributed and likely already spent, consumer credit, such as credit cards, financing, is on the rise again, CNN reported.

Moreover, pandemic-related forbearances on mortgage debt, utilities and rent payments are expiring soon, meaning those families will be less shielded from rising inflation.

The Federal Reserve said Wednesday that it could start raising its benchmark interest rate sometime next year, a sign that it's concerned that high inflation pressures may persist.

Along with the moves, Fed policymakers also indicated they will start pulling back on some of the stimulus the central bank has been providing during the financial crisis.

The Fed said it will likely begin slowing the pace of its monthly Treasury bond purchases "soon" if the economy keeps improving.