WASHINGTON (AP) – US households have been struggling with rising inflation for several months. On Wednesday, the government specified how much they have.
Prices for US consumers rose by 6.2% in October compared to a year earlier, when rising costs for food, gas and housing led families to face the highest inflation rate since 1990. The year-on-year increase in the consumer price index exceeded 5 , 4% increase in September, said the Ministry of Labor. From September to October, prices rose 0.9%.
Inflation erodes the strong gains in wages which has flowed to American workers in recent months, created political headaches for the Biden administration and congressional Democrats and intensified pressure on the Federal Reserve as it considers how quickly it should withdraw its efforts to boost the economy.
With Americans in the middle of planning year-end trips, Thanksgiving meals and holiday gifts, the inflation jump makes these purchases significantly higher than they were last year.
The strong demand from consumers has driven the rise in prices, which has encountered persistent supply shortages from COVID-related factory outages in China, Vietnam and other foreign manufacturers. Ports are bottlenecks, with a lack of shipping containers that magnify the problem. U.S. employers, faced with a shortage of workers, have also handed out significant wage increases, and many of them have raised prices to compensate for their higher wage costs.
The result has been rising prices for a wide range of consumer goods, from food, heating oil and patio furniture. for paints, chemicals and blinds. After first affecting mainly goods in pandemic-disturbed industries, rising inflation has extended to the many services that Americans spend money on, especially for restaurant meals, rental apartments and medical services, which jumped 0.5% in October.
Used car prices rose again last month after falling in August and September. The cost of a used vehicle rose 2.5% from September to October and has risen more than 25% from a year ago. With car manufacturers having sharply reduced production due to a shortage of parts, the prices of new cars have risen for seven months in a row.
Grocery prices have risen 5.4% in the last year, which will make Thanksgiving meals much more expensive. The price of steak has risen 25% from a year ago. Bacon is up 20%.
The Biden administration has attributed higher meat prices to consolidation in the meat packaging industry, with a lack of competition that allows large processors like Tysons to raise prices. Meat packaging companies have countered that covid-related plant closures, and the difficulty of finding workers to staff the factories when they reopen, are to blame.
Many Republicans in Congress have accused President Joe Biden’s $ 1.9 trillion financial aid package, approved in March, of intensifying inflation. The extra stimulus controls and increased unemployment benefits, they claim, drove demand beyond what the economy could produce.
On Wednesday, Biden visited the port of Baltimore to highlight parts of the recently adopted infrastructure package that will upgrade the capacity of ports and, the administration says, help remove bottlenecks and ultimately reduce inflation.
“Inflation is hurting Americans’ wallets, and reversing this trend is a top priority for me,” he said.
Energy costs rose by 4.8% from September to October alone, with petrol, natural gas and heating oil rising for the same reason that many other raw materials have become more expensive: Demand has risen sharply as Americans drive and fly more, but supplies have not kept pace.
In the last year, energy costs have increased by as much as 30%, and petrol has increased by almost 50%. One gallon of gas, on average, was $ 3.42 nationwide on Tuesday, according to AAA. That’s up from just $ 2.11 a year ago.
Natural gas prices are also rising, as is heating oil. The Energy Information Administration estimates that these will increase will bite hard this winter, with Americans expected to spend 30% more on natural gas and 43% more on heating oil.
Job gains and wage increases have been much healthier during the pandemic recovery than they were after the Great Recession about a decade ago. However, in contrast to the years that followed the decline, when inflation was low, rising prices are reducing Americans’ confidence in the economy, studies have found..
Economists still expect inflation to decline when supply bottlenecks are removed and Americans move more of their consumption back to pre-pandemic norms. As COVID-19 disappears, consumers should spend more on travel, entertainment and other services and less on goods such as cars, furniture and appliances, which will reduce the pressure on supply chains.
But no one knows how long it may take. Higher inflation has persisted much longer than most economists had expected. And inflation is spreading far beyond objects such as appliances and new and used vehicles that are directly affected by the pandemic.
“Inflation is likely to get worse before it gets better,” Goldman Sachs economists said in a research note on Sunday.
For several months, central bank governor Jerome Powell had described inflation as “transient,” a short-term phenomenon linked to labor shortages and supplies due to the rate at which the economy picked up after the pandemic recession. But last week, Powell acknowledged that higher prices can last well into next summer.
The Fed leader announced that the central bank will start reducing the monthly bond purchases it started last year as an emergency measure to boost the economy. Investors now expect the Fed to raise its benchmark rate twice next year from its record low near zero – much earlier than they had predicted a few months ago.
Many large companies pass on the cost of higher wages to their customers, and in some cases consumers pay up instead of cutting down.
Fast food prices rose by 7.1% in October from a year earlier, the government said on Wednesday. It was the largest increase ever, reflecting higher costs for beef and other foods as well as rapidly rising labor costs.
To attract workers, for example, McDonald’s has increased hourly wages by 10% to 15% in the last year. To help cover the higher labor costs as well as more expensive food and paper, the company said last month that it raised prices by 6% in the July-September quarter from the previous year. Nevertheless, the company’s sales increased by 14% as the virus restrictions were eased.
Other companies have been more cautious. One of them, Wayfair, an online furniture retailer, said last week that costs are rising as factories in Asia have closed down amid covid outbreaks, ports are stuck and labor costs have risen. But the company does not necessarily transfer all the higher costs.
“We are in a mass-oriented business where the average customer does not have an unlimited discretionary budget,” said Michael Fleisher, Wayfair’s CFO. “Inflation is booming across the economy, and there are competing demands on their time and wallet share.”