The Fed's preferred inflation index remained at its highest level in 30 years as wages rose.

Annual inflation is rising at the fastest rate in three decades in the United States, according to data released Friday, keeping the pre...


Annual inflation is rising at the fastest rate in three decades in the United States, according to data released Friday, keeping the pressure on the Federal Reserve and the White House as they attempt to calibrate their policy during a tumultuous time marked by strong consumer demand and rapidly rising prices for sofas, cars and housing.

Prices climbed 4.4% in the year through September, according to the personal consumption expenditure price index, which is the central bank’s preferred indicator of inflation. This beats the past few months to become the fastest rate of increase since 1991.

From August to September, prices climbed 0.3%, in line with economists’ expectations and slower than the rapid figures released at the start of the summer. Policymakers may take this as a sign that inflation was moderating, although it remains fast on a year-over-year basis, as autumn approaches.

The numbers have come as separate data showed that wages and benefits increased for American workers, and especially service workers, in the three months through September. Rising wages are good news for workers, but it could worry economic policymakers as it indicates price increases will continue as employers try to cover rising labor costs.

Jerome H. Powell, the chairman of the Fed, increasingly recognizes that inflation lasts longer than central bankers expected. Fed officials believe inflation will subside as supply chain grunts collapse and consumer demand for goods cools, but it’s unclear when that will happen. Janet L. Yellen, Secretary of the Treasury, predicted rapid price hikes will subside by now later next year.

Yet the current rate of inflation has become a uncomfortable political problem for President Biden and created a tricky balancing act for the Fed, which is still trying to re-energize the labor market.

Data released on Friday confirms which more timely inflation measures like the consumer price index It has already shown: price increases are unusually sharp in the United States. Much of this is happening because supply chains are struggling to keep up with high demand, thanks to virus-related factory closures, clogged ports and a shortage of workers in transit, among other factors. This combination made it difficult to buy a kitchen table or a used car and drove up the prices of many products sharply.

Personal expenses continued at a steady pace in September, according to data released Friday, up 0.6% from August – slower than the month before, but in line with what economists had expected.

Consumption continued even though an income measure that includes benefit payments fell in September, a drop that was mainly due to the government giving less money to households. Personal income fell 1% last month as UI pandemic expansions expired and other pandemic relief programs were concluded or paid less.

But even if government assistance decreases, labor income increases. New data has shown Americans earn more at work: A measure of employment costs that tracks wages and benefits rose 1.3% in the third quarter, more than the 0.9% expected by economists and the pace of fastest data since the start of the series in 1996.

On an annual basis, the employment cost index rose 3.7%, the fastest pace since 2004. Wage gains are particularly rapid in service industries, which struggle to attract workers. workers to reopen pandemic closures.

The Fed is closely monitoring measures of wages and inflation expectations, which have risen in recent weeks, as it tries to assess whether price gains could get out of hand.

“The risk is that the persistence of high inflation will start to cause price and wage setters to expect excessively high rates of inflation in the future,” said Powell. said last week. And if inflation seemed likely to remain high, “we would certainly use our tools to preserve price stability, while also taking into account the implications of our maximum employment target.”

As prices rise, the Fed prepares to slow down the large-scale bond purchases it has been using to lower long-term borrowing costs and support the economy. The central bank has bought $ 120 billion worth of treasury and mortgage-backed securities, but is about to announce plans to slow down that program as early as next week. Mr Powell said shopping could stop altogether by mid-2022.

This would leave the Fed in a position to raise its key interest rate, its most traditional and arguably most powerful tool, if it were to do so to curb price hikes. This rate has been close to zero since March 2020.

When the Fed raises interest rates, it’s more expensive to borrow to buy homes, cars, and washing machines. As demand cools, supply catches up and price gains moderate or even reverse, reducing inflation.

But the downside is that slowing consumption and economic growth also lead to reduced business expansion and hiring. Slowing the job market is an unappealing prospect at a time when millions of people remain unemployed after closures at the start of the pandemic and with lingering health and child care concerns.

The Biden administration is trying to make sure price concerns don’t undermine its economic program. Ms Yellen said over the weekend that she expects inflation to decline by mid-2022.

“Americans haven’t seen inflation like we’ve seen it recently for a long time,” Yellen admitted on CNN’s “State of the Union” on Oct. 24. “As we get back to normal, expect this to end.”

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Newsrust - US Top News: The Fed's preferred inflation index remained at its highest level in 30 years as wages rose.
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