Tue. Dec 7th, 2021

Last month, US consumers paid much more for basic necessities such as food, fuel and shelter as inflation in the world’s largest economy continues to rise.

How much higher will prices climb?

Flashing inflation has been a feature of this year’s global economic recovery from last year’s COVID-19 battle for months. And in the United States – the world’s largest economy – price pressures continue to accelerate at a pace not seen for three decades.

U.S. consumer prices rose 6.2 percent in October from the same period a year ago, the U.S. Department of Labor said Wednesday. It is the fastest pace since 1990 and has blown past many analysts’ already dull inflation estimates.

On a monthly basis, the Consumer Price Index (CPI) rose by 0.9 percent in October, after rising by 0.4 percent in September.

Supply chain bottlenecks and shortages of raw materials and workers drive prices still higher for US businesses, which in turn is increasingly passing on those increased input costs to U.S. consumers.

This is very important for the health of the US economy, as two-thirds of its growth is driven by consumer spending.

So far, the steward of the US economy, the Federal Reserve, has not been worried about this year’s rise in inflation, insisting that price pressures will be temporary and will eventually ease.

The Fed decided to start reversing bond purchases that helped the economy during the pandemic. But it said it should not be seen as a sign that it is ready to raise interest rates – the sharpest tool at its disposal to curb inflation – soon.

U.S. consumers, meanwhile, get ready for more pain in their wallets, with the most recent monthly survey of consumer expectations by the New York Fed showing that median inflation expectations have reached an everyday high for the coming year.

Consumers often respond to rising prices by exchanging more expensive brands for less expensive brands or simply going without goods and services that could delay them from buying until a later date, when squatter shock may have eased.

However, some purchases cannot be postponed – such as food, fuel and shelter. This is why inflation low-income households hit especially hard because they shell out a larger portion of their modest income to cover the needs.

October’s increase in consumer inflation was driven by energy, with prices jumping 4.8 per cent from the previous month and 30 per cent over the past twelve months.

Within the energy category, petrol prices rose by 6.1 per cent on a monthly basis in October and almost 50 per cent from the same period a year ago.

Food prices rose 0.9 percent in October after rising 0.4 percent in September, while shelter prices rose 0.5 percent last month.

The so-called core CPI, which removes food and energy, rose 0.6 percent in October from the previous month, largely driven by higher vehicle costs due to a shortage of semiconductors that weighed car and truck production and made used cars. much more expensive.

Higher housing rents also drove the core CPI higher.

“The biggest concern for the Fed should be signs that long-term cyclical inflationary pressures continue to build rapidly, with CPI rents from primary housing and landlords’ equivalent rents both achieving strong gains of 0.4% m / m,” Andrew Hunter said. senior U.S. economist at Capital Economics in a note to clients. “While the improved labor market and previous increases in house prices continue to carry through, a further acceleration in shelter inflation seems to be nailed down.”

The effect of labor shortages on consumer prices was evident in the “food away from home” category of CPI. It rose 0.8 percent in October, reflecting this year’s sharp rise in wages for leisure and hospitality workers facing customers.

But this year’s wage bumps are not keeping pace with inflation, leaving many households on the back foot in rising prices.

Last month, average hourly wages were 4.9 percent higher than the same period a year ago.

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