October 2021 CPI: Inflation Rose at Fastest Rate Since 1990

The Consumer Price Index rose 6.2 percent in October from a year ago, its fastest increase since 1990. That is bad news for President Biden and the central bank.,

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+6.2% in

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+6.2% in

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without food

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Year-over-year change in the Consumer Price Index

By The New York Times

Consumer prices surged at the fastest pace in more than three decades in October as fuel costs picked up, supply chains remained under pressure and rents moved higher — bad news for economic policymakers at the Federal Reserve and for the Biden White House.

Overall prices rose by 6.2 percent over the past 12 months, the fastest pace since 1990, and inflation began to accelerate again on a monthly basis.

Inflation jumped to 0.9 percent last month from September, a Labor Department report showed, faster than the prior month’s increase of 0.4 percent and well above economists’ expectations. So-called core prices, which strip out products like food and fuel, also climbed more quickly.

Rising prices could be seen across the board in October, at grocery stores and restaurants and car dealerships. The acceleration eliminates a White House talking point: Top Biden administration officials had regularly pointed out that while price gains were faster than usual, they were slowing down from rapid summertime readings. It also poses a challenge for the Fed, which is charged with maintaining stable prices and fostering maximum employment.

Instead of cooling off toward the end of 2021 as many policymakers had expected, inflation rates remain far faster than the 2 percent annual gains the Fed aims for on average over time. While the Fed sets its goal using a separate measure of inflation — the Personal Consumption Expenditures index — that too has picked up sharply this year. The C.P.I. reports come out faster, and help to feed into the central bank’s favored gauge, so they are closely watched by economists and Wall Street investors.

On Wednesday, President Biden acknowledged the ongoing price rise, saying in a statement that “reversing this trend is a top priority for me.”

Administration and Fed officials alike have maintained that rapid inflation should eventually fade. But they have had to revise how quickly that might happen: Supply chains remain badly snarled, and demand for goods is holding up and helping to fuel higher prices. As wages begin to rise in many sectors amid labor shortages, there are reasons to expect that some businesses might charge their customers more to cover climbing worker costs. October’s data did nothing to alleviate that worry.

“It’s a big number,” Michelle Meyer, head of U.S. economics at Bank of America, said of the October data. “What’s striking is the broadening of the inflationary pressures.”

Many factors pushed inflation higher last month. Used and new car shortages have sent prices skyrocketing, supply chain issues have made furniture costlier, labor shortages are raising some service-industry price tags, and rents are rising after a weak 2020. In the headline data, food and fuel prices have picked up sharply.

The reality that inflation is broadening — and spreading to slow-moving categories like rent rather than staying confined to pandemic-disrupted ones like imported electronics and airplane tickets — could unsettle Fed policymakers, because it increases the risk that price pressures could last. That’s especially true as labor proves scarce and participation in the job market shows little sign of picking up, fueling wage gains, Ms. Meyer said.

“It’s obviously getting uncomfortable for the Fed,” she said.

Officials have avoided overreacting to an inflation surge driven by supply chain problems, worried that doing so would hurt the economy unnecessarily. If the current trends persist, they will likely come under growing pressure to hasten their plans to pull back economic support by ending their stimulative bond buying program and raising interest rates sooner and more quickly.

Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said on Bloomberg television on Wednesday that inflation data was “eye popping” — but that the Fed was also paying attention to the many jobs still missing. She said it was too soon to suggest that officials will need to speed up their process of tapering off bond buying, a process they just announced, and a precursor to rate increases.

“It would be very premature to start asking whether we should quicken the taper,” Ms. Daly said.

Markets took note of the increase, with stocks slowly sinking throughout the day. A key measure of the bond market’s expectations for inflation over the next five years rose to a new high of 3.10 percent shortly after the report was issued. Investors expected inflation to average about 3 percent a year for the next five years, essentially, far higher than any time in the decade before the pandemic hit.

For policymakers and investors alike, it is difficult to predict when price jumps might moderate. Many are intertwined with the reopening of businesses from state and local lockdowns meant to contain the coronavirus; the economy has never gone through such a widespread shutdown and restart before.

But many policymakers have become wary that uncomfortably high inflation might linger. Consumers have been increasing their expectations for future price gains. Households expecting to face climbing grocery, department store and gas bills might demand pay raises — setting off an upward cycle in which wages and prices push one another ever upward.

Key measures of price expectations haven’t climbed into the danger zone yet, officials including Richard H. Clarida, the Fed’s vice chair, have said. And there are still reasons to believe that today’s price pop will fade. Households are sitting on huge savings stockpiles amassed during the pandemic, but should theoretically spend those down now that government support programs like expanded unemployment insurance have fully or mostly lapsed.

If demand moderates, it could open the door for a return to normal, as supply chains catch up. To the extent that suppliers have responded to this moment by ramping up their productive capacity, some prices might even fall.

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Americans are paying more for furniture, food and pretty much everything else they’re buying these days.Credit…Jutharat Pinyodoonyachet for The New York Times

Even so, that could take time.

Supply chain experts have been warning that some of the shortages driving up costs might get worse before they get better, especially headed into the busy holiday shopping season, which could further clog backed-up ports and understaffed trucking routes. The longer that prices for washing machines and electronics continue to soar, the more risk there is that consumers will begin to plan for higher prices.

Dawn Tiura, the chief executive of Sourcing Industry Group, a member association for supply chain professionals, said that she expected difficulties to last into the third quarter of 2022.

“Almost all consumer goods are going to be impacted,” said Ms. Tiura. “It’s not going to let up anytime soon.”

Understand the Supply Chain Crisis

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Covid’s impact on the supply chain continues. The pandemic has disrupted nearly every aspect of the global supply chain and made all kinds of products harder to find. In turn, scarcity has caused the prices of many things to go higher as inflation remains stubbornly high.

Almost anything manufactured is in short supply. That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.

First, demand for home goods spiked. Money that Americans once spent on experiences were redirected to things for their homes. The surge clogged the system for transporting goods to the factories that needed them and finished products piled up because of a shortage of shipping containers.

Now, ports are struggling to keep up. In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up. The chaos in global shipping is likely to persist as a result of the massive traffic jam.

No one really knows when the crisis will end. Shortages and delays are likely to affect this year’s Christmas and holiday shopping season, but what happens after that is unclear. Jerome Powell, the Federal Reserve chair, said he expects supply chain problems to persist “likely well into next year.”

Used car prices may not peak until April 2022, said Jonathan Smoke, chief economist at Cox Automotive, which produces a closely watched index that tracks wholesale vehicle costs. After that, they’re unlikely to actually fall; they will just increase less quickly than their current breakneck pace.

At #1 Cochran Subaru Butler County, a car dealership in Western Pennsylvania, general sales manager Jim Adams is offering a $500 bonus to lease customers who return vehicles early, and purchasing cars that people bring in for repairs. He is asked a few times a day when things might normalize.

“Until the manufacturers can get back up to speed, used car prices will continue to grow,” Mr. Adams said in an email.

As industries wait for balance to return, Republicans are pointing fingers at Mr. Biden and Democrats, saying they are to blame for the run-up in prices because they handed checks to households and enacted other pandemic-tied policies. They have labeled the moment “Bidenflation.”

The White House has tried to emphasize that higher prices are coming at a time when the country is staging a rapid economic rebound from a once-in-a-century disaster. And Mr. Biden has said that his new policies, including an infrastructure bill that cleared Congress last week, would over time expand capacity and help to cool inflation.

“I want to reemphasize my commitment to the independence of the Federal Reserve to monitor inflation, and take steps necessary to combat it,” Mr. Biden added in his statement following Wednesday’s data.

At the Fed, some officials are already warning that the central bank may need to pull back economic support faster. Doing that could cool down prices by tempering demand, but would also weaken the job market at a moment when millions remain out of work compared with prepandemic employment levels.

That would be a heavy price to pay, and a needless one if the inflation jump fades on its own.

“We don’t think it’s time yet to raise interest rates,” Jerome H. Powell, the Fed chair, said at a recent news conference. “There is still ground to cover to reach maximum employment.”

But he, Ms. Daly and other officials have been careful to acknowledge that the costs of high prices, especially in things that households must consume every day.

Gasoline prices were 49.6 percent higher in October than a year earlier, and fuel oil, which is used for industrial and domestic heating, was up by 59 percent.

Food at home cost 5.4 percent more this October than a year earlier, and some categories including steak and bacon posted gains in excess of 20 percent.

“I expect lots of eyeballs were bulging out of their sockets when they saw the number come in,” Seema Shah, chief strategist at Principal Global Investors, wrote in a note reacting to Wednesday’s data. “Inflation is clearly getting worse before it gets better.”

Ana Swanson, Talmon Joseph Smith, Matt Phillips and Clifford Krauss contributed reporting.

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