Prices for goods and services have risen dramatically as a result of unprecedented levels of COVID-19 stimulus, a labor supply constraint, and global supply network bottlenecks. The quick rise in prices, on the other hand, has alarmed investors.
In October, based on the latest numbers issued by the US Labor Department, the inflation rate increased by 6.2 percent over the previous 12 months, the biggest percentage jump in 31 years.
The consumer price index (CPI)—a gauge that tracks the change in costs of commodities such as fuel, groceries, healthcare, and rents—was predicted to rise 5.9%, according to analysts polled by Dow Jones.
Somewhat more alarming, the CPI increased by 0.9 percent between September and October, far exceeding the economists’ projection of 0.6 percent. Core inflation, which excludes fuel and food, witnessed the highest increase since 1990 as it rose 0.6 percent this November and 4.6 percent year over year.
Detailed Overview of Price Increases
Many of the increases were fuelled by higher energy prices, with motorists paying 6.1 percent more at the pump in October and fuel oil prices jumping 12.3 percent. Analysts attribute the rise to a number of variables, along with a supply/demand disparity exacerbated by the pandemic.
Consumers were not spared at the supermarket either. Food costs continued to rise, up 0.9 percent from the previous week and 5.3 percent from a year ago, with significant price increases for meat, poultry, fish, and eggs.
Refurbished autos had an unusual price increase as well, up 2.5 percent in October and 26.4 percent over the previous year. However, a global semiconductor scarcity and an increase in the number of drivers on the road contributed to an almost 10% increase in the cost of new vehicles and trucks.
Markets are betting against the Federal Reserve
Although Federal Reserve Chairman Jerome Powell has stated that the increase in inflation is due to pandemic-related difficulties and has stated that no interest rate hikes are anticipated, the market is not persuaded.
Traders forecast two rate hikes in 2022, according to the Chicago Mercantile Exchange’s (CME) FedWatch program, with a 44 percent chance of a third raise.
Wage Growth in an Economy Experiencing Inflation
Wage growth inched up 0.4 percent in October, according to employment figures released last Friday, bolstering optimism for a larger economic rebound from the pandemic. When inflation was factored in, however, such dreams were dashed. When the 0.4 percent growth is subtracted from the 0.9 percent increase in inflation last month, average hourly earnings fell 0.5 percent. The Federal Reserve faces a balancing act with October’s inflation report as it gradually reduces its stimulus while gradually increasing it.
The Federal Reserve faces a balancing act in winding down its stimulus while slowly raising interest rates to protect a reviving economy, as revealed by October’s inflation figure.