Consumer prices rose at the fastest pace since 1982

Prices are rising with the fastest cut in almost 40 years, according to recent data released on Friday, as supply chain disruptions, rapid consumer demand and rising housing costs lead to an inflation outbreak.
The increase in consumer costs could create problems for Federal Reserve and White House officials, who are trying to calibrate policy at a time when the labor market has not yet fully recovered from the pandemic, but price increases are proving to be more sustained than politicians had done. expected.
The consumer price index climbed 6.8 percent during the year to November, the data showed, the fastest pace since 1[ads1]982. After removing food and fuel, which can move a lot from month to month, inflation rose by 4, 9 percent. It was the fastest annual reading since 1991.
Monthly price increases – the change between October and November, rather than the last year – were somewhat moderate, but still rose at an unusually rapid pace.
The question is what happens next. Fed officials have become increasingly concerned about inflation, both because the rise has been longer than expected and because it shows signs of expanding to areas less affected by the pandemic, which increases the risk that quick gains may be anchored.
“It just keeps the pressure on Fed officials,” said Kathy Bostjancic, director of US macro-investor services at Oxford Economics.
Earlier this year, price increases were concentrated on goods. Used cars and sofas were in demand as the pandemic changed people’s lifestyles. Factories around the world struggled to keep up with the increase in purchases, partly because closures related to the virus increased production. Freight routes and ports were also congested as demand followed an atypical pattern, with too many US-bound goods trying to leave Asia in particular. As supply dwindled, prices rose higher.
These disturbances were expected to be temporary. Instead, they have lasted for several months, as demand for products remains strong and the virus continues to disrupt production and transportation.
Inflationary pressures also extend to areas that are not as directly affected by the virus. Rental costs, for example, have risen sharply as high house prices shut potential buyers out of the market. Housing costs make up a large part of the consumer price index, so it helps to increase total inflation.
Jennifer Callahan, a mother of two in the Denver area, has rented a three-bedroom house since her previous home burned down in early 2020. But local rental rates are rising, and she’s worried she will not be able to find a comparable place for something like that. as $ 2400 she and her housemate pay if their lease is not renewed.
“Homes in this area are being sold for insane, insane amounts,” she said. “Then it totally destroys the rental market.”
As costs increase across a wider range of goods and services, the Fed becomes more concerned.
“In general, the higher prices we see are related to the supply and demand imbalances that can be traced directly back to the pandemic and the reopening of the economy, but it is also the case that price increases have spread much more widely in recent months,” said Jerome H. Powell. The Fed leader, during the congressional testimony late last month, “I think the risk of higher inflation has increased.”
Fed officials put themselves in a position to use their political tools to weigh down inflation, should it become necessary.
Mr. Powell signaled last week that the Fed, which outlined a plan last month to begin cutting back on support for the economy, is ready to discuss accelerating this process at its two-day political meeting next week. Economists expect the Fed to announce a plan to curb its monthly bond purchases quickly enough to end the program sooner than originally planned.
This will mean that the Fed adds less juice to the economy with each passing month. It will also allow officials to raise interest rates, their more powerful tools, faster. Politicians have been clear that they prefer to complete the purchase of bonds before increasing borrowing costs, which are set close to zero, so that their political tools do not work against each other.
Friday’s data will keep decision-makers on track to accelerate their plans to scale down bond purchases, said Alan Detmeister, senior economist at UBS and former head of the payroll and price division at the Fed Board in Washington.
“This is still a huge – a very, very strong – number,” said Mr. Detmeister, explaining that although he expects inflation to decline, it may take until the middle of next year before it appears clearly over the course of the year. . -year data.
“It seems pretty clear that they are going to increase the speed of the downsizing,” he added.
Moving on to the next step – raising interest rates – will make debt of all kinds, from mortgages to car and corporate loans, more expensive. It will probably reduce expenses and employment, cool down demand and weigh down high housing costs. The combination can help put a lid on price gains.
But it can also leave the country with a less competitive labor market. It can be bad if the millions of people who remain outside the labor market compared to before the pandemic decide to go on a job hunt. Many workers have not yet returned due to childcare issues and other virus-related factors.
Nevertheless, the Fed is on guard against letting inflation get out of control. In the 1960s, the central bank failed to take sufficient decisive action to curb rising prices. Inflation rose and rose to double-digit levels during the 1970s, and Paul Volcker, then central bank governor, pushed up interest rates sharply to bring things under control in the early 1980s.
The pull against demand caused a painful recession before it led to price increases. The error, and its aftermath, has haunted central bankers ever since.
This time, Fed officials are looking at wages and consumer expectations to try to gauge whether prices are on the verge of becoming more problematic.
As housing and other daily costs increase, workers can begin to ask for increases to compensate for the economic blow. Rising wages can lead to inflation as companies pass on rising labor costs to consumers, and as larger wage cuts help households continue to spend money, and maintain consumer demand.
Data show that wages are already rising sharply. Employers compete for labor at a time when vacancies far exceed the number of people actively seeking jobs, and they are raising wages to attract and retain workers. The Employment Cost Index, a measure the Fed closely monitors, picked up particularly in the three-month period ending in September.
Wages are rising particularly fast for low-wage earners, although they have not kept pace with the acceleration in prices for most workers in recent months. Continued government benefits – including an extended tax deduction for children – may still mean that families are better positioned to afford climbing expenses.
Because consumers have been able to afford to spend, companies have managed to charge more, protect and even increase the bottom lines as input costs rise. Profit margins for a large number of companies have increased this year, including in some of the industries hardest hit by supply problems.
“In fact, we see that the price increases we’ve experienced as a result of covering the costs we incur from input product and shipping are absorbed by the customer,” Bruce K. Thorn, CEO of Big Lots, said in a December 3 revenue interview. , and later added that “we do not see that resistance.”
The Democrats have begun blow up big companies to take advantage of the moment.
“Now, while working families are just starting to get back on their feet, mega-companies would rather pass on higher costs to consumers than cut their profits,” Senator Sherrod Brown, a Democrat from Ohio, said in a recent hearing.
But the Republicans have it put the blame on Mr. Biden and the Democrats, a development that threatens to jeopardize the president’s larger agenda, including the $ 2.2 trillion climate and social policy bill he is trying to send along party lines. Centrist Democrats have begun to question the wisdom of pouring more money into the economy at a time when demand and prices are high.
“The unknown we face today is far greater than the need for people to believe in this ambition proposal that we are looking at, and we must make sure we get it right,” said Senator Joe Manchin III, a Democrat from the West. Virginia, said earlier this week. Mr. Biden will need the support of all Senate Democrats to pass the law, making Mr. Manchin’s vote critical.
Inflation is also a political responsibility for the White House among voters, because it makes everyday life more difficult for many Americans, especially those who depend on savings held in relatively low-risk investments such as savings accounts or certificates of deposit. These people see that the value of the stock is reduced.
Retirees living on social security will see their benefits increase – the cost of living adjustment for 70 million Americans will be 5.9 percent by 2022 – but they are already feeling the brunt of higher consumer prices.
Diana Madoshi, a retired nurse in Placer County, California, who is dependent on Social Security benefits, said higher grocery store prices have begun to strain her budget. A carton of eggs, which cost around $ 2.80 before the pandemic, is now almost $ 4, she said.
She has taken fewer Uber trips to see a doctor and has cut back on buying clothes to compensate for the costs.
“This is just another tough reality of what we’re going through right now,” said Madoshi, 75. “And there’s nothing I can do about it.”
– Madeleine Ngo contributed with reporting.