Consumer prices rose at the fastest pace in more than three decades in October as fuel costs rose, supply chains remained under pressure and rents rose — worrying news for economic policymakers at the Federal Reserve and the Biden White House.
Overall prices have risen 6.2 percent over the past 12 months, the fastest pace since 1990, and inflation is beginning to accelerate again on a monthly basis.
Prices rose across the board in October, at deli offices, restaurants, and auto dealers. The acceleration is an unwelcome development for the Biden administration, which has consistently indicated that while price gains have been faster than usual, They were slowing down A quick summer read. It also presents a policy challenge to the Federal Reserve, which is charged with maintaining price stability and promoting maximum employment.
Inflation rates remain much faster than the 2 percent annual gains the Fed aims to achieve on average over time. While the Fed sets its target using a separate measure of inflation – personal consumption expenditures The indicator – this has also rebounded sharply this year. CPI reports come in faster, and help feed the central bank’s preferred metric, so economists and Wall Street investors are watching them closely.
On Wednesday, President Biden acknowledged the rising cost of living, issuing a statement following the report saying that “reversing this trend is a top priority for me.”
“A lot of people are still uneasy about the economy and we all know why: They’re seeing higher prices,” he said later in the day, speaking in the Baltimore port, after noting that “everything from a gallon of gas to a loaf of bread costs more, and that Worrying, despite the high wages.”
The president’s approval ratings have fallen as consumers feel the tightness of rising prices for gas, groceries and housing. Higher prices could also complicate his ability to pass a major spending bill through Congress that, with some lawmakers, carries much of its economic agenda. express concern About the effect of increased federal spending on inflation.
Part of the dilemma is that inflation is not as mild, as many economists expected by the end of 2021. Instead, it jumped to 0.9 percent last month from September, Ministry of Labor report , faster than the previous month’s 0.4 percent increase and well above economists’ expectations. So-called core prices, which exclude products such as food and fuel, have also risen more quickly.
Administration and Federal Reserve officials alike have emphasized that rapid inflation must eventually vanish. But they had to review how quickly that could happen: Supply chains remain severely disrupted, and demand for goods holds up and helps drive prices up. With wages starting to rise in many sectors amid a labor shortage, there are reasons to expect that some companies may be charging more fees to their customers to cover rising labor costs. The October data did nothing to mitigate this growing unease.
“It’s a big number,” said Michelle Meyer, head of US economics at Bank of America, of the October data. “What is striking is the breadth of inflationary pressures.”
Several factors pushed inflation higher last month. Shortage of new and used cars It sent prices skyrocketing, supply chain issues pushed up the cost of furniture, labor shortages pushed up some service industry price tags, and rents soared after a weak 2020 year. food And fuel prices It was snapped sharply.
The fact that inflation is spreading beyond categories disrupted by the pandemic such as imported electronics and airline tickets to slow-moving areas such as rent could alarm federal policymakers, as it increases the risk of continued price pressures. This is especially true where work proves a rarity and Participation in the labor market Ms Meyer said it is showing little sign of underachievement, fueling wage gains.
“It’s obviously getting uncomfortable for the Fed,” she said.
Officials avoided overreacting to higher inflation caused by supply chain problems, fearing it would hurt the economy unnecessarily. If trends continue, they will likely come under increasing pressure to speed up their plans to withdraw economic support by ending the stimulus bond-buying program and raising interest rates from rock bottom sooner and more quickly.
Mary C. Daly, president of the San Francisco Fed, said inflation was “eye-packing” but cautioned that the Fed was paying attention to the many jobs still missing from the labor market. In an interview with Bloomberg TV on Wednesday, Ms Daly said it was too early to suggest officials would need to speed up the process of slowing – or curtailing – monthly bond purchases beyond the pace the Fed announced last week. Tapers in that buying is a prelude to an increase in prices.
“It would be too early to begin to question whether we should speed up tapering,” Ms Daly said.
Markets took note of the inflation figures, with stocks falling slowly throughout the day. A key gauge of the bond market’s expectations of inflation over the next five years rose to a new high of 3.10 percent shortly after the report was released. This means that investors expected inflation to average about 3 percent per year over the next five years, essentially, much higher than at any time before the pandemic.
They are also increasingly betting that the Fed will respond: Market rates are signaling Investors are expecting more Raise the interest rate by the central bank meeting in June 2022.
For policy makers and investors alike, it’s hard to predict when price jumps might moderate. Much is intertwined with businesses reopening from state and local shutdowns aimed at containing the coronavirus; The economy has never gone through such a large-scale shutdown and restart before.
But officials have become wary of the prospect of alarmingly high inflation continuing. Consumers were increase their expectations for future price gains. Households that expect to face spiraling grocery, convenience store, and gas bills may demand wage increases—resulting in an upward cycle in which wages and prices constantly push each other up.
Key metrics of price expectations haven’t reached the danger zone yet, officials say Including Richard H. Clarida, vice president of the Federal Reserve, said. There are still reasons to believe that today’s price rally will fade. Families are sitting on it Huge savings stocks They built up during the pandemic, but those sums should theoretically be spent now that government support programs such as expanded unemployment insurance have expired completely or mostly.
If demand moderates, it may open the door to a return to normal, with supply chains catching up. To the extent suppliers have responded to this moment by increasing their production capacity, some prices may fall.
However, this may take some time.
Supply Chain Experts They warn that some of the deficiencies driving up costs may get worse before they get better, particularly heading to busy shopping season, potentially further clogging up spare ports and understaffed trucking routes. And the longer the prices of washing machines and electronics go up, the higher the risk that consumers will start planning for higher prices.
said Jonathan Smock, chief economist at Cox Automotive, which produces a Pointer watching closely that tracks wholesale vehicle costs. After that, they are not really likely to fall off; It will increase at a lower speed than its current fast pace.
At #1 Cochran Subaru Butler County, a western Pennsylvania auto dealership, General Manager Sales, Jim Adams, is offering a $500 bonus to customers who return rental vehicles early and purchase vehicles people bring in for repair. He is asked several times a day when things might return to normal.
Understand the supply chain crisis
“Until manufacturers can get back up to speed, used car prices will continue to grow,” Mr. Adams said in an email.
As industries wait for equilibrium to return, Republicans are pointing the finger at Biden and Democrats, saying the stimulus checks they’ve given families and other benefits linked to the pandemic are to blame for the price hike.
White House I tried to confirm That prices are skyrocketing as the country experiences a rapid economic recovery from a once-in-a-century disaster. and mr. Biden said That his new policies, including the infrastructure bill acquit Congress Last week, it will increase capacity over time and help cool inflation.
But the president made clear on Wednesday that the responsibility for taming inflation rests with the Fed. “I want to reaffirm my commitment to the independence of the Federal Reserve to monitor inflation, and to take the necessary steps to combat it,” Biden said in his statement.
At the Federal Reserve, some officials have already warned that the central bank may need to withdraw economic support faster. Doing so may lower prices by dampening demand, but it would also weaken the labor market when millions remain unemployed compared to pandemic levels of employment.
That would be a heavy price to pay, and an unnecessary price if inflation were to vanish on its own.
Jerome H. Powell, Chairman of the Federal Reserve, said in a The last press conference. “There is still a floor to cover for maximizing employment opportunities.”
Federal Reserve officials have been careful to acknowledge that higher prices can be difficult for consumers to absorb, especially for goods and services that households consume regularly.
Gasoline prices It was 49.6 percent higher in October than a year earlier, and fuel oil, which is used for industrial and home heating, was up 59 percent.
Food at home cost 5.4 percent in October compared to the previous year, and some categories Including steak and bacon yielded gains of more than 20 percent.
“My expectation is that a lot of eyeballs were bulging out of their sockets when they saw the number coming in,” Seema Shah, chief strategist at Principal Global Investors, wrote in a note reacting to the October data. It is clear that inflation gets worse before it gets better.
Contribute to reporting Anna SwansonAnd Talmon Joseph SmithAnd Matthew Phillips And Clifford Krause.