Core index was up 4.6% as pandemic-related supply shortages, strong consumer demand continue
By Gwynn Guilford Wall Street Journal, Updated Nov. 10, 2021
U.S. inflation hit a three-decade high in October, delivering widespread and sizable price increases to households for everything from groceries to cars due to persistent supply shortages and strong consumer demand.
The Labor Department said the consumer-price index—which measures what consumers pay for goods and services—increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%.
The core price index, which excludes the often-volatile categories of food and energy, climbed 4.6% in October from a year earlier, higher than September’s 4% rise and the largest increase since 1991.
On a monthly basis, the CPI increased a seasonally adjusted 0.9% in October from the prior month, a sharp acceleration from September’s 0.4% rise and the same as June’s 0.9% pace.
Price increases were broad-based, with higher costs for new and used autos, gasoline and other energy costs, furniture, rent and medical care, the Labor Department said. Food prices for both groceries and dining out rose by the most in decades. Prices fell for airline fares and alcohol.
U.S. stocks fell and bond yields rose as investors digested the impact of price pressure on the global economy.
Persistently higher inflation—triggered by a faster-than-anticipated but uneven economic recovery, trillions of dollars in pandemic-related government stimulus and other factors—is hitting consumers’ wallets. At the same time, a rebounding economy and healthy household balance sheets are both stoking demand and cushioning price increases.
The inflation surge is complicating the Federal Reserve’s strategy for unwinding easy-money policies the central bank imposed early in the pandemic. It has also emerged as a political factor affecting the Biden administration’s economic agenda.
The reading renewed GOP criticism of Democrats’ roughly $2 trillion social spending and climate plan as wasteful and likely to fuel inflation. The plan includes funding for expanded child care, free prekindergarten, an enhanced child tax credit and other items, along with provisions to bring down prescription drug prices.
Prices climbed the fastest in the South, a part of the country that reopened earlier in the pandemic but was hit relatively harder by the Delta variant of Covid-19. Prices were also up more in the Midwest than in the Northeast and West.
Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, expects inflation to persist for a while, with the U.S. entering a six-month period of unusually high price increases.
“I do think we’re moving into a new phase where inflation is broader and where things are going to get a little more intense,” she said. “Part of that reflects that [supply-chain] bottlenecks aren’t resolved going into the holiday season, when a lot of purchases get made, and that the economy is doing really well, so you have strong demand.”
Ms. Rosner-Warburton sees a shift under way in which a wider range of factors will spur inflation, as opposed to previous months’ increases that were driven disproportionately by skyrocketing vehicle prices and the reopening of services after Covid-19 vaccines became available.
Washington, D.C., resident Jordan Berry said she has been feeling the squeeze of higher prices. The 21-year-old is taking a year off from college and spending that time as a babysitter, tutor and personal cook. She says she has been hit by higher grocery prices and Uber rides to and from clients.
“The amount of money I’m spending right now is kind of ridiculous,” she said. “It does make me nervous.”
“I literally went to Whole Foods and Trader Joe’s recently and we spent probably the same amount of money and got a lot less things” compared with grocery trips earlier this year, she said.
The other day, Ms. Berry tried to book an Uber to a babysitting job 4 miles from her home and cringed at the proposed $30 fare. She waited 15 minutes until the fare came down. “Uber prices have been draining my pocket,” she said.
Recently, Ms. Berry added, someone hired her to cook two meals and the ingredients cost $100—leading her to charge her client more.
Fed officials are watching inflation measures closely to gauge whether the recent jump in prices will be temporary or longer lasting. One such factor is consumer expectations of future inflation, which can prove self-fulfilling as households are more likely to demand higher wages and accept higher prices in anticipation of further price hikes.
Consumers’ median inflation expectation for three years from now stayed at 4.2% in October, the same as in September, according to a survey by the New York Fed—the highest level since the survey began in 2013.
Gasoline prices last month shot up nearly 50% from the same month a year ago, putting them at levels last seen in 2014. Grocery prices climbed 5.4%, with pork prices up 14.1% from a year ago, the biggest increase since 1990.
Prices for new vehicles jumped 9.8% in October, the largest rise since 1975, while prices for furniture and bedding leapt by the most since 1951. Prices for tires and sports equipment rose by the most since the early 1980s.
A 5.3% surge in restaurant prices last month marked the sharpest increase since 1982. The steady rise in restaurant prices over the past few months is a sign of this pass-through from wages into higher prices, economists say. That dynamic is increasingly showing up in other sectors.
Unusually high demand—boosted by government stimulus and an improving job market—is a crucial factor driving higher inflation.
Consumer spending increased at an annual rate of 1.6% in the third quarter, a sharp slowdown from a 12% increase in the prior quarter. However, much of that deceleration was due to scarcity of new cars and other durable goods. Consumer spending on services last quarter climbed at the brisk annual rate of 7.9%.
Spending on services has bounced back further in recent weeks as coronavirus infections fell, which could increase pressure on prices.
Businesses are also passing on higher costs to consumers. Sixty percent of small-business owners said they had raised prices in the previous 90 days, according to a November survey of more than 560 small businesses for The Wall Street Journal by Vistage Worldwide Inc., a business-coaching and peer-advisory firm.
Eighty percent of the companies surveyed reported higher labor costs, while 72% said vendors had increased prices and more than half experienced higher costs for raw materials and other inputs.
Companies are struggling to get materials and are delaying orders, adding to demand pressures. The most prominent example is a shortage of semiconductors that has hamstrung auto production and driven up prices for both new and used vehicles.
A separate shortage of available workers is also affecting inflation and the overall economy, said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.
“The bigger picture is we’re likely to see inflation climb higher,” she said. “Things are going to get worse before they get better.”
The dearth of workers needed to meet consumer demand is also putting upward pressure on wages, adding to companies’ motivations for raising prices to offset higher labor costs. Higher food and energy prices—driven up by pandemic-related production snags, weather and geopolitical factors—are also spurring inflation, said Richard F. Moody, chief economist at Regions Financial Corp.
“All these things are being rolled into prices we pay at the grocery store,” he said.
Some companies are racing to keep up with continuous, rapid price increases across the economy.
Tom McTaggart, a pricing consultant and the founder of PricingAudit.com, said he began sensing a sustained rise in supply-chain-driven inflation during the summer. His billable hours had surpassed those for all of 2020, itself a record-breaking year for his business. Demand for his services has surged as his clients have struggled to preserve their margins.
“It’s a never-ending loop—by the time you’ve implemented one price increase, you’re already ready to implement a new one,” said Mr. McTaggart, who is based in Philadelphia. “It’s like trying to hit a moving target while you’re standing on a moving platform.”
—Josh Mitchell and Ruth Simon contributed to this article.