Prices rose 6.2 percent in October compared with a year ago, the largest annual increase in about 30 years, as rising inflation complicates the political agenda for the White House and policymakers’ road map for the economy heading into the end of the year.
Forecasters expected a surge in October’s inflation data, released Wednesday by the Bureau of Labor Statistics, in large part because of soaring gas and energy prices, plus ongoing supply chain backlogs in the used-car market. The energy index rose 4.8 percent in October compared with the month before, as the gasoline index increased 6.1 percent. Such high energy and gas prices are spilling into the costs of just about every other good, economists say, and pinching an already strained supply chain.
Yet, inflation expanded to other categories, increasing throughout the economy, with the BLS noting “broad-based” higher prices for energy, shelter, food, used cars and trucks and new vehicles among the larger contributors. The indexes for medical care, for household furnishing and operations, and for recreation all increased in October.
Overall prices rose 0.9 percent in October compared with September, tying June for the biggest one-month increase in prices this year. Airline fares and alcoholic beverages were among the few categories to decline in October.
Meanwhile, the latest snapshot of higher prices comes at a tense time for the Biden administration, as they try to corral support for a $2 trillion jobs and social spending package. On Wednesday morning, a key Democrat needed for the package, Sen. Joe Manchin III (D-W.Va.) raised new concerns about inflation, building on his earlier remarks warning about more government spending.
President Biden on Wednesday tried to assuage these fears, highlighting good news in the economy, including lower weekly claims for jobless benefits, while also suggesting his economic agenda, including the package Congress recently passed to boost infrastructure spending, will bring down prices.
“Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me,” Biden said in a statement. “The largest share of the increase in prices in this report is due to rising energy costs—and in the few days since the data for this report were collected, the price of natural gas has fallen.”
But White House officials and the officials at the Federal Reserve have for months been asserting inflation will be a temporary or “transitory” feature of the economy. They argue that the price increases are driven by supply chain backlogs that have constrained auto manufacturing, housing construction and food production alike. Inflation won’t come down to more sustainable levels, they argue, until those supply chains have time to clear.
But it’s unclear when that will happen, especially given how vulnerable the economy remains to the pandemic and waves of the virus. At a news conference last week, Fed Chair Jerome H. Powell said “the level of inflation we have right now is not at all consistent with price stability.”
Some economists are also concerned that while wages are climbing, they aren’t growing enough to compensate for inflation and the rising cost of living, at least in the short term. And many of the daily items that some households must budget for, keep getting more expensive. Bacon is up 20 percent compared to last year. Eggs are up nearly 12 percent, and chicken up is up almost 9 percent. Rent is also creeping up, with costs rising 0.4 percent in October compared to September.
“The Fed has to be laser focused on the hardest-hit and low-wage households,” said Diane Swonk, chief economist at Grant Thornton. “Wages and salaries have gone up for leisure and hospitality workers…but there’s no way they can absorb the commute costs and accelerating rents. The only thing that’s cheap is turkey, in terms of proteins. So go ahead and stick with that turkey for Thanksgiving.”
Powell has pledged the Fed will do what it can to prevent these increases from becoming more permanent.
“People who are living paycheck to paycheck or seeing higher grocery costs, higher gasoline costs, when the winter comes, higher heating costs for their homes — we understand completely what they’re going through,” Powell said last week. “We will use our tools over time to make sure that that doesn’t become a permanent feature of life.”
The Fed’s main tool for combating inflation is interest rates, which it can raise or lower depending on what’s happening in the economy. Fed leaders have pledged not to raise interest rates until the labor market is fully healed.
However, the rise in household goods is eroding wage gains each month. Households feeling the strain now could increasingly begin to believe that inflation will stick around longer and change their spending behavior, which could make inflation a self-perpetuating cycle, lasting longer.
Republicans, meanwhile, argue that the Fed should be doing more now to combat inflation. They say the Fed risks being behind the curve if inflation turns out to be much more permanent than Powell and others believe.
The Fed, which is charged with keeping prices stable, is also limited in how it can fix holes in the economy. Powell last week said that “our tools cannot ease supply constraints.”
Biden will visit the Port of Baltimore on Wednesday to tout the administration’s effort to ease warped supply chains. On Tuesday, the Biden administration announced a new plan to expand the capacity of U.S. ports and inland waterways. Most of the new activity involves $17 billion in ports funding included in the bipartisan infrastructure legislation that Congress approved last week. But the administration plans within the next 45 days to award $243 million in new port and marine infrastructure grants, according to senior administration officials.
Indeed, there are signs of economic strength encouraging policymakers, economists and workers alike. The nation added 531,000 jobs in October, and the Labor Department has revised the disappointing jobs reports from August and September to show more significant gains. The unemployment rate has ticked down to 4.6 percent. Coronavirus cases have dropped in recent weeks, helping restore confidence for businesses and consumers. Major U.S. stock indexes have also soared to record levels.
Given those data points, Federal Reserve officials are starting to unwind the pandemic-era stimulus by scaling back, or “tapering,” the vast asset-purchase program each month. The Fed has said it could tweak the pace of the taper depending on how the economy progresses. But Powell declined to explain what those criteria would be during a news conference last week.
Swonk said it’s likely such broad-based price increases will continue in the months to come. That could spur the Fed to draw down its asset purchases more quickly.
“This is going to get worse before it gets better,” she said.
Powell said it was “within the realm of possibility” that the economy could reach maximum employment by the second half of 2022, and the markets are predicting a rate hike next year.
David Lynch contributed to this report.