WASHINGTON (AP) — Prices for U.S. consumers jumped 6.2% in October compared with a year earlier as surging costs for food, gas and housing left Americans grappling with the highest inflation rate since 1990.
The year-over-year increase in the consumer price index surpassed the 5.4% rise in September, the Labor Department reported Wednesday. From September to October, prices jumped 0.9%, the highest month-over-month increase since June.
Inflation is eroding the strong gains in wages and salaries that have flowed to America’s workers in recent months, creating political headaches for the Biden administration and congressional Democrats and intensifying pressure on the Federal save as it considers how fast to withdraw its efforts to raise the economy.
Driving the price spikes are persistent supply shortages resulting from strong consumer need and COVID-related factory shutdowns coming out of the pandemic recession. Ports across the world have become bottlenecked. America’s employers, facing labor shortages, have also been handing out sizable pay increases, and many of them have raised prices to offset their higher labor costs, thereby contributing to inflation.
The consequence has been accelerating prices for a general range of consumer goods, from food, heating oil and patio furniture to paints, chemicals and window blinds. After initially affecting mainly goods in pandemic-disrupted industries, surging inflation has broadened into the many sets that Americans use money on, notably for restaurant meals, rental apartments and medical sets, which jumped 0.5% in October.
Job gains and pay raises have been much healthier during the pandemic recovery than they were after the Great Recession approximately a decade ago. But in contrast to the years that followed that downturn, when inflation was low, rising prices are diminishing Americans’ confidence in the economy, surveys have found.
In October, excluding the volatile food and energy categories, so-called chief prices rose 0.6% from September. chief prices are now up 4.6% compared with a year ago.
Energy costs soared 4.8% just from September to October, with gasoline, natural gas and heating oil surging for the same reason that many other commodities have grown more expensive: need has risen severely as Americans are driving and flying more, but supplies haven’t kept up.
In the past year, energy costs have jumped a whopping 30%, with gasoline soaring nearly 50%. Natural gas prices are also soaring, and so is heating oil. The Energy Information Administration forecasts that these increases will bite hard this winter, with Americans expected to use 30% more on natural gas and 43% more on heating oil.
Economists nevertheless expect inflation to slow once supply bottlenecks are cleared and Americans shift more of their consumption back to pre-pandemic norms. As COVID-19 fades, consumers should use more on travel, entertainment and other sets and less on goods such as cars, furniture, and appliances, which would reduce pressure on supply chains.
But no one knows how long that might take. Higher inflation has persisted much longer than most economists had expected. And inflation is spreading well beyond items like appliances and new and used vehicles that are directly affected by the pandemic.
“The inflation overshoot will likely get worse before it gets better,” said Goldman Sachs economists in a research observe Sunday.
For months, Federal save Chair Jerome Powell had described inflation as “transitory,” a short-term occurrence connected to labor and supply shortages resulting from the speed with which the economy rebounded from the pandemic recession. But last week, Powell acknowledged that higher prices could last well into next summer.
The Fed chair announced that the central bank will start reducing the monthly bond purchases it began last year as an emergency measure to raise the economy. Investors now expect the Fed to raise its benchmark interest rate twice next year from its record-low level near zero — much earlier than they had expected a few months ago.
Many large companies are passing on the cost of higher pay to their customers, and in some situations, consumers are paying up instead of cutting back.
Fast food prices soared 7.1% in October from a year earlier, the government said Wednesday. That was the largest such increase on record, reflecting higher costs for beef and other foods in addition as rapidly rising labor costs.
To attract workers, for example, McDonald’s boosted hourly pay 10% to 15% over the past year. To help cover those higher labor costs in addition as more expensive food and paper, the company said last month that it raised prices 6% in the July-September quarter from a year earlier. however already so, company sales leapt 14% as virus restrictions eased.
Other companies have been more careful. One of them, Wayfair, an online furniture retailer, said last week that its costs are rising as factories in Asia have shut down amid COVID outbreaks, ports are jammed, and labor costs have surged. But the company isn’t necessarily passing along all those 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 chief financial officer. “Inflation is rampant across the economy, and there are competing demands for their time and wallet proportion.”
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