US inflation hits fastest annual pace since 1982 - Financial Times

US consumer prices increased at the fastest pace in nearly 40 years in November, piling more political pressure on the Biden administration as it seeks support for a massive spending plan.

The consumer price index published by the Bureau of Labor Statistics on Friday rose 6.8 per cent last month from a year ago, the fastest annual pace since 1982 and a significant pick-up from the 6.2 per cent rate in October.

Prices between October and November jumped 0.8 per cent, slightly down from the previous month-on-month increase of 0.9 per cent.

“Broad increases in most component indices” fuelled the rise, the BLS said, with gasoline, shelter, food, and used and new vehicles “among the larger contributors”.

The energy index rose 3.5 per cent between October and November, while the gasoline index jumped 6.1 per cent. On an annual basis, they are 33 per cent and 58 per cent higher, respectively.

Food price growth slowed marginally, increasing 0.7 per cent in November compared with 0.9 per cent the month prior. Dining out prices rose 0.6 per cent for the month, down from the 0.8 per cent rate seen in October.

Stripping out volatile items such as food and energy, core CPI climbed 0.5 per cent from October. That is roughly in line with the previous period, and pushed up the annual pace to 4.9 per cent. Last month, it registered 4.6 per cent.

Column chart of Annual % change in consumer prices showing Inflation in the US has accelerated at its fastest pace since 1982

Driving the increase was a jump in shelter costs, household furnishings, apparel and airline fares, the BLS said.

Shelter-related costs, which represent about a third of the CPI index, rose 0.5 per cent over the month, with owners’ equivalent rent — which measures what homeowners believe their properties would rent for — up 0.4 per cent, for an annual increase of 3.5 per cent.

Prices for household furnishings increased 0.7 per cent in November and are up 6 per cent on the year. Apparel costs rose once again after a string of monthly declines, registering a 1.3 per cent increase for the month. On an annual basis, those expenses are 5 per cent higher. Airline fares also bucked a months-long decline, jumping 4.7 per cent. On a year-over-year basis, they are lower by 3.7 per cent.

Inflation has become a thorny political issue for the White House, weighing on President Joe Biden’s approval ratings as well as the electoral prospects for his Democratic party during next year’s midterm elections.

The Biden administration assumed a defensive stance ahead of Friday’s report, and the president issued a rare statement that sought to play down the relevancy of the incoming data.

“The information being released tomorrow on energy in November does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead, such as in the auto market,” Biden said on Thursday.

In response to the CPI data, US stock markets rose, Treasury yields across maturities dipped and the flattening pattern in the yield curve that had begun before the data release persisted. Rate rise expectations were little changed.

Gasoline prices have moderated in recent weeks, as have natural gas prices, though a senior administration official said this “relief” was not captured in the November report. Price pressures are set to abate further in 2022, the person added, noting that such a forecast aligns with most official and private sector projections.

At risk for the White House is legislation to invest $1.75tn in America’s social safety net, which Biden is seeking to pass through Congress this month. Last month Biden signed into law another flagship $1.2tn bipartisan infrastructure bill.

Republicans and some moderate Democrats have argued that additional spending will add further fuel to rising prices, contributing to even higher inflation.

According to a recent poll of academic economists for the Financial Times — in partnership with the Initiative on Global Markets at the University of Chicago Booth School of Business — the planned expenditures are not expected to alter the inflation outlook substantially.

The majority of the 48 economists surveyed said the two bills would have “no material impact” on inflation, while roughly a third said it could lead to marginally higher price pressures over time.

Once concentrated to a few sectors most sensitive to pandemic-related reopenings and supply-chain disruptions such as used cars and travel-related expenses, inflation has broadened out and now shows signs of becoming a persistent problem.

Jay Powell, chair of the Federal Reserve, has now jettisoned the central bank’s characterisation of inflation as “transitory”, which senior officials had repeatedly invoked to push back on criticism that they were not taking a tough enough stance against what they had determined were temporary price pressures.

He acknowledged the risks of inflation becoming entrenched had risen, setting the stage for the US central bank to more quickly scale back its stimulus at its meeting next week. Just a month ago, the Fed announced a reduction in its asset purchase programme by $15bn a month, meaning it would no longer buy government bonds by the end of June.

Powell signalled support for a quicker exit, as have other senior officials, which would give the Fed more flexibility to raise interest rates sooner next year.

Wall Street economists broadly expect the Fed to cease expanding the size of its balance sheet in March and have pencilled in the first interest rate increase in June, with roughly two more planned for later in the year.

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