WASHINGTON , American households have struggled with accelerating inflation over the past few months. The government revealed how much on Wednesday.
The U.S. consumer prices rose 6.2% in October, compared to a year ago. This was due to rising costs for food and gas. It is now the highest inflation rate since 1990. According to the Labor Department, the year-over-year rise in the consumer price index was higher than the 5.4% increase in September. Prices increased 0.9% from September to October.
Inflation is eroding the large gains in wages and salaries that have flowed to America’s workers in the recent months. This has created political headaches for Congress Democrats and the Biden administration. It also intensifies pressure on the Federal Reserve, as it evaluates how quickly to withdraw its efforts in boosting the economy.
Americans are busy planning holiday travel, Thanksgiving meals, and gifts for their loved ones. The rise in inflation has made these purchases much more expensive than last year.
The reason for the price rise has been strong consumer demand. This has led to persistent supply shortages due to COVID-related factory shut downs in China, Vietnam, and other overseas producers. The problem is exacerbated by a shortage of shipping containers and a bottleneck in ports. America’s employers have been offering large pay raises to compensate for worker shortages.
This has led to a rapid rise in prices for a wide range of consumer goods. These include food, heating oil, and patio furniture, as well as paints, chemical, and window blinds. Inflation initially affected only pandemic-disrupted goods, but has since risen to the cost of many services Americans use, including restaurant meals, rental apartments, and medical services.
After a September and August recovery, used car prices rose again in October. The price of a used car rose 2.5% between September and October, but has increased more than 25% compared to a year ago. New car prices have risen seven consecutive months after automakers slowed production due to parts shortages.
The past year has seen a 5.4% increase in grocery prices, making Thanksgiving meals more expensive. Beef roasts are 25% more expensive than a year ago. Bacon is up 20%
Higher meat prices have been attributed by the Biden administration to consolidation within the meat-packing sector, with a lack of competition enabling big meat processors like Tyson’s raise prices. Meat-packing firms claim that COVID-related plant shutdowns and difficulty finding workers to staff factories when they reopen are to blame.
Many Republicans in Congress blame President Joe Biden’s March $1.9 trillion financial aid package for inflating inflation. They claim that the additional stimulus checks and increased unemployment aid drove more demand than the economy could produce.
Wednesday’s visit by Biden to Baltimore was part of a recently passed infrastructure package. It will increase port capacity and help reduce inflation, according to the administration.
The president stated that inflation hurts Americans’ pocketbooks and that he considers it a top priority to reverse the trend.
From September to October, energy costs rose 4.8%. Gasoline, natural gas, and heating oil soared for the same reason many other commodities have risen in price: While demand has risen rapidly as Americans drive and fly more, supplies have not kept up.
The past year has seen a dramatic rise in energy costs, which have increased by 30%. However, gasoline prices have risen nearly 50%. According to AAA, a gallon of gasoline cost $3.42 on Tuesday. This is an increase of just $2.11 from a year ago.
Heating oil prices and natural gas prices are both on the rise. According to the Energy Information Administration , these increases are expected to be severe this winter. Americans will spend 33% more on natural gas, and 33% more on heating oils.
The pandemic recovery has seen more job gains and raises than the Great Recession a decade ago. Surveys have shown that Americans are less confident in the economy than they were in the years following the downturn.
Economists expect inflation to slow down once supply bottlenecks have been cleared and Americans return to pre-pandemic levels. COVID-19 will fade, so consumers should spend more money on entertainment, travel, and other services, and less on goods like cars, furniture, or appliances. This would help reduce supply chain pressure.
However, no one knows for sure how long. Inflation has been higher than economists expected. Inflation is spreading beyond the immediate pandemic-affected items such as appliances and new and used cars.
In a Sunday research note, Goldman Sachs economists stated that “the inflation overshoot” will likely worsen before it improves.
Jerome Powell, Federal Reserve Chair, had been describing inflation as “transitory” for months. This was due to short-term supply and labor shortages that result from the rapid recovery of the economy from the pandemic recession. Powell admitted last week that higher prices may continue into next summer.
As an emergency measure to boost the economy, the Fed chair announced that they will reduce the monthly bond purchases that it started last year. Investors expect that the Fed will raise its benchmark interest rates twice next year, from the record-low near zero level — much sooner than they predicted a few months back.
Large companies often pass on higher wages to customers. In some cases, consumers are actually paying more than they are cutting back.
According to Wednesday’s government statement, fast food prices rose 7.1% in October compared to a year ago. This was the largest increase in fast food prices since records began. It was due to rising labor costs and higher beef costs.
McDonald’s has increased hourly wages by 10% to 15% in an effort to attract employees. The company announced last month that prices were 6% higher in the July-September quarter than a year ago to cover the increased labor costs and more expensive paper. Despite this, sales rose 14% when virus restrictions were eased.
Others have been more cautious. Wayfair, an online furniture retailer, stated last week that its prices are increasing as more factories in Asia close down due to COVID epidemics. Ports are jammed and labor costs have risen. The company isn’t necessarily passing on all the higher costs.
Michael Fleisher is Wayfair’s chief financial officers. He stated, “We are in an mass-oriented business where customers don’t have an unlimited discretionary fund.” “Inflation is rampant in the economy. There are competing demands for their money and time.”
