Inflation up 6.8% and markets react to CPI data: updates live

Inflation hit its highest level in nearly 40 years, according to new data released on Friday, as supply chain disruptions, rapid consumer ...


Inflation hit its highest level in nearly 40 years, according to new data released on Friday, as supply chain disruptions, rapid consumer demand and rising housing costs combine to fuel the strongest inflationary surge in a generation.

Rising costs pose a problem for Federal Reserve and White House officials, who are trying to calibrate policy at a time when the labor market has yet to fully heal from the pandemic, but the risk that increases in prices become more sustainable increases.

the Consumer price index climbed 6.8% in the year through November, the data shows, the fastest pace since 1982. After cutting out food and fuel, which can move a lot from month to month other, inflation soared 4.9%.

Prices were up 0.8% from October, according to the report. This is slightly slower than the previous monthly increase, but still at an unusually fast pace.

The question is what happens next. Fed officials are increasingly concerned about the price hike – both because the hike has lasted longer than expected and because it shows signs of broadening to areas less affected by the pandemic.

Earlier this year, price increases focused on goods. Used cars and sofas were in demand as the pandemic changed people’s lifestyles, but factories around the world have struggled to keep up with the surge in purchases, in part because of closures linked to the virus. have upset production. Shipping routes and ports also became clogged as demand followed an atypical pattern, with too much cargo going to the United States trying to leave Asia in particular.

These disruptions were to be temporary. Instead, they lasted for months as demand for goods remains strong and the virus continues to disrupt production.

As the vagaries of the pandemic persist, inflationary pressures are also mounting. This includes rental prices, which have jumped after an initial downturn during the pandemic and are helping to increase overall price gains. This is a worrying development for the Fed as it considers its next policy measures.

“In general, the higher prices that we are seeing are related to the imbalances between supply and demand that can be attributed directly to the pandemic and the reopening of the economy, but it is also true that the price increases are occurring. have spread much more widely in recent months, ”said Jerome H. Powell, Chairman of the Fed. during testimony before Congress at the end of last month. “I think the risk of higher inflation has increased.”

Fed officials are keeping a close watch on what is happening with wages – and with consumer inflation expectations – as they try to gauge when and to what extent inflation will subside. But they are also starting to recognize that they might have to react to higher prices.

Mr Powell signaled last week that the Fed, which began cutting economic support last month, will discuss speeding up that process at its December 14-15 meeting. Economists expect central bankers to announce a plan to slow their monthly bond purchases quickly enough for the program to end several months earlier, putting Fed officials in a position to hike their rates. benchmark interest, their most traditional and powerful tool.

Friday’s data will keep policymakers on track to accelerate their plans to cut bond purchases, said Alan Detmeister, senior economist at UBS and former head of the wages and prices division at the Fed Board in Washington.

“It’s still a huge number – very, very strong,” Mr Detmeister said, explaining that while he expects inflation to moderate, it may be necessary to wait until the middle of the month. next year so that it will manifest itself clearly during the year. year data. “It seems pretty clear that they are going to speed up the taper,” he added.

Taking the next step – raising rates – would make debt of all kinds, from mortgages to auto and business loans, more expensive. This would likely slow spending and hiring, dampening demand and weighing on high housing costs. The combination could help curb price gains.

But it could also leave the country with a less competitive labor market. It could be serious if the millions of people who remain out of the workforce compared to before the pandemic – many due to childcare issues and other virus-related issues – decide to embark on a job search.

Credit…Philip Cheung for The New York Times

Even so, the Fed is wary of letting inflation soar. In the 1960s, the central bank did not take decisive enough action to curb the rise in prices. Inflation spiraled out of control, reaching double-digit levels during the 1970s, and then Fed Chairman Paul Volcker sharply raised interest rates to get things under control in the early 1980s.

The blow to demand triggered a painful recession before bringing price gains to a halt. The mistake, and its consequences, have since haunted the nightmares of central bankers.

As housing and other daily costs increase, workers may start asking for increases to help offset the financial blow. Employers are competing for workers at a time when job openings far outweigh the number of people actively looking for work, and wages are rising steadily. The cost of employment index, a measure the Fed is monitoring closely, picked up in particular during the three month period that ended in September.

Wage increases were not enough to fully offset inflation more people: wage gains are rising sharply, especially for low wages, but are not rising fast enough to keep up with the acceleration in prices.

And as companies faced with rising input and labor costs seek to pass them on to consumers, this can actually help keep prices rising.

Large companies are managing to stay profitable as overseas parts and commodities like gasoline skyrocket, in part because they successfully pass those costs on to consumers. Profit margins for non-financial corporations have grown at a sustained rate this year, including in some of the sectors hardest hit by supply problems.

“Auto inventories continued to decline, but dealers made big profits because of high vehicle prices,” noted the Federal Reserve’s Beige Book, a collection of regional economic reports. from the Richmond district.

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Newsrust - US Top News: Inflation up 6.8% and markets react to CPI data: updates live
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