A customer shops at a Safeway store in San Francisco, Calif., on Oct. 4.Justin Sullivan/Getty Images
U.S. consumer prices accelerated in October as Americans paid more for gasoline and food, leading to the biggest annual gain in 31 years, suggesting inflation could stay uncomfortably high well into 2022 amid snarled global supply chains.
Inflation pressures are also brewing in the labour market, where an acute shortage of workers is driving wages higher. The number of Americans filing claims for unemployment benefits fell to a 20-month low last week, other data showed on Wednesday.
High inflation is eroding the wage gains, adding to political risk for President Joe Biden, whose approval rating has been falling as Americans grow more anxious about the economy. The White House and the Federal Reserve, which views high inflation as transitory, have maintained that prices will fall once supply bottlenecks start easing.
“There is increasing evidence that inflationary pressures are broadening out, underlining that inflation will remain elevated for much longer than Fed officials expect,” said Andrew Hunter, a senior economist at Capital Economics.
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The consumer price index jumped 0.9 per cent last month after climbing 0.4 per cent in September, the Labor Department said on Wednesday. The largest gain in four months boosted the annual increase in the CPI to 6.2 per cent. That was the biggest year-on-year rise since November 1990 and followed a 5.4 per cent increase in September.
The broad-based increase in prices last month was led by gasoline prices, which surged 6.1 per cent after rising 1.2 per cent in September. Food prices advanced 0.9 per cent, with meat, eggs, fish, vegetables, cereals and bakery products becoming more expensive. But prices for alcoholic beverages declined. Rents increased a solid 0.4 per cent and prices for both new and used motor vehicles rose.
Excluding the volatile food and energy components, the CPI gained 0.6 per cent after climbing 0.2 per cent in September. The so-called core CPI jumped 4.6 per cent on a year-on-year basis, the largest increase since August 1991, after being steady at 4.0 per cent for two straight months. Economists polled by Reuters had forecast the overall CPI shooting up 0.6 per cent and the core CPI rising 0.4 per cent.
U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury yields rose.
WORKER SHORTAGES
Inflation is heating up again as the economic drag from the summer wave of COVID-19 infections, driven by the Delta variant, fades and supply bottlenecks persist. Trillions of dollars in pandemic relief from governments across the globe fuelled demand for goods, leaving supply chains overstretched.
The nearly two-year long pandemic has upended labour markets, causing a global shortage of workers needed to produce raw materials and move goods from factories to consumers. The government reported on Tuesday that producer prices increased strongly in October, reversing a slowing trend in the monthly PPI that had become entrenched since spring.
Though the Fed last week restated its belief that current high inflation is “expected to be transitory,” most economists are skeptical, also noting that wages are rising strongly as companies scramble for workers.
The U.S. central bank this month started reducing the amount of money it is injecting into the economy through monthly bond purchases. The Fed’s preferred inflation measure for its flexible 2 per cent target increased 3.6 per cent year-on-year in September.
With labour scarce, companies are holding on to their workers. In another report on Wednesday, the Labor Department said initial claims for state unemployment benefits fell 4,000 to a seasonally adjusted 267,000 for the week ended Nov. 6.
That was the lowest level since the middle of March in 2020, when the economy almost ground to a halt under the onslaught of mandatory business closures aimed at slowing the first wave of COVID-19 infections. Claims, which have now declined for six straight weeks, are within striking distance of their pre-pandemic level.
The report was published a day early because the federal government is closed on Thursday for the Veterans Day holiday.
The government reported last Friday that the economy added 531,000 jobs in October, with annual wage growth the largest in eight months. The labour force is down 3 million from its pre-pandemic level, making it harder to fill the 10.4 million job openings as of the of August.
“Businesses facing labour shortages are likely retaining rather than laying off workers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “Even so, for the labour market, supply remains a constraint that is a headwind for the recovery for now.”
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