Mon. Dec 6th, 2021

U.S. consumer prices are expected to rise at their fastest pace in three decades in October, as bottlenecks and other supply chain disruptions escalate and inflationary pressures widen.

Consensus forecasts compiled by Bloomberg indicate that the consumer price index which will be published by the Bureau of Labor Statistics on Wednesday, rose 5.9 percent in October from a year ago – the fastest annual pace since 1990 and a sharp increase from September’s levels of 5.4 percent.

Month-on-month price increases are also expected to have increased, with a 0.6 percent jump in pencil. Although noticeably lower than the 0.9 per jump reported between May and June, it represents a significant acceleration from August to September period, when prices rose by 0.4 per cent.

Once volatile items such as food and energy have been stripped away, economists expect monthly increases of 0.4 percent, double the most recent reading. On an annualized basis, that rate is forecast to register at 4.3 percent. In September, it stood at 4 percent.

The incoming data will reinforce the view that inflationary pressures appear much more persistent than initially expected – a growing risk that the Federal Reserve acknowledged last week when it announced its plans to start scale back its $ 120 billion asset purchase program later this month.

While costs have moderated in recent months in some sectors that are most sensitive to the economic reopening of the coronavirus pandemic, including used cars and travel costs, prices are picking up elsewhere.

Rents and other shelter-related costs, which account for about a third of CPI, have risen steadily in recent months, while certain services are also becoming more expensive as employers raise wages to grapple with a severe labor shortage.

Deteriorating supply-demand imbalances have also pushed up energy prices, and damaging bottlenecks have made many goods, from household items to new cars, significantly more expensive.

Senior Fed officials – including Chairman Jay Powell and Vice President Richard Clarida – continue to argue that today’s imbalances will eventually disappear as global supply chains and labor markets adjust, meaning that today’s inflation will eventually be “transient” and fade over time.

But Powell and Clarida have indicated the Fed is monitoring the situation closely and is ready to use the central bank’s tools if necessary.

One popular measure of interest rate expectations, eurodollar futures, indicates that the Fed will increase its key policy rate around September 2022.

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