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Inflation is getting harder for Fed to ignore

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Federal Reserve Chair Jerome Powell testifies during a U.S. House Oversight and Reform Select Subcommittee hearing on coronavirus crisis, on Capitol Hill in Washington, June 22, 2021. Graeme Jennings/Pool via REUTERS

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WASHINGTON, July 13 (Reuters Breakingviews) - Federal Reserve Chair Jerome Powell will find it increasingly difficult to disregard the current spike in inflation. Consumer prices rose 5.4% from a year earlier in June, the biggest annual increase in 13 years, the Labor Department said on Tuesday. True, there were particularly pronounced jumps in the price of certain items, like used cars: A 10.5% rise in secondhand vehicle prices from May made up about one-third of the overall monthly bump. But it’s not clear how quickly such pressures will fade . For example, electronics maker Flex (FLEX.O) said last month that chip shortages, which have caused a car supply crunch, will spill well into 2022. Food and energy are also on the rise as people emerge from Covid-related lockdowns read more .

This compounds pressure on the Fed to start reducing its $120-billion-a-month asset purchases to ensure inflation doesn’t become a blaze. A majority of the central bank’s rate-setting committee saw price risks at their June policy meeting but they didn’t say when they would react. Another month of inflation figures like these will force Powell to be more specific. (By Gina Chon)

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(This item has been corrected in the first paragraph to show the rise in vehicle prices was monthly.)

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Editing by Swaha Pattanaik and Amanda Gomez

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