US inflation hit a 39-year high in November

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Inflation in the United States hit an almost four-decade high in November, as strong consumer demand collided with supply constraints from the pandemic.

The Labor Department said on Friday that the Consumer Price Index, which measures what consumers pay for goods and services, rose 6.8% in November from the same month a year ago. It was the fastest pace since 1982 and the sixth consecutive month in which inflation has exceeded 5%.

The so-called base price index, which excludes the often volatile food and energy categories, rose 4.9% in November from a year earlier. This is a larger increase than the 4.6% increase in October and the highest rate since 1991.

The November price trend came before the emergence of the Omicron variant of Covid-19, which poses a new threat from a pandemic that is in its second year.

On a monthly basis, the seasonally adjusted CPI rose 0.8% seasonally in November from the previous month, about the same as October’s 0.9% increase.

The prices of vehicles, rents, furniture and air fares rose in the past month. Some energy prices showed signs of easing, but gasoline rose 6.1% for the second month in a row. Prices for entertainment and communications fell in November.

While the cost of groceries, clothing, and electronics rose in the United States, prices in Japan remained low. Peter Landers of the WSJ is shopping in Tokyo to explain why fixed prices, while good for your wallet, can be a sign of a slow growing economy. Photo: Richard B. Levine / Zuma Press; Kim Kyung Hoon / Reuters

“These are appallingly high inflation numbers, unlike anything we’ve seen in decades,” said Allen Sinai, chief economist and strategist at Decision Economics, Inc.

Despite the high rate, he said the main driver of inflation is a good thing: a booming economy.

“We have huge expenses from consumers. Lots of people are hired. The demand is enormous. Monetary policy remains very easy and fiscal stimulus has no precedent in history, ”Sinai said.

Sixty percent of small business owners said they had increased their 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 coaching and coaching company. peer counseling. Eighty percent of companies surveyed reported an increase in labor costs, while 72% said their suppliers had increased their prices.

The November jobs report signaled continued improvement in the labor market. The unemployment rate fell to 4.2% from 4.6%, with 1.1 million more people employed in November than in October, the Labor Department said. Consumer spending also remained strong, advancing 1.3% in October, the most recent government figures.

Unlike past recoveries, strong demand for goods such as automobiles, furniture, and appliances was behind much of the surge in inflation. Prices for services, such as travel and recreation, have generally increased much less with lower demand. The holiday season is likely exacerbating that dynamic, said Aneta Markowska, chief financial economist at Jefferies LLC.

“The imbalances between supply and demand will continue to widen,” she said.

Companies are still struggling to secure materials, although supply constraints have shown signs of easing before the emergence of the Omicron variant. The most striking example of strained supply chains is a semiconductor shortage that has crippled auto production. The limited supply of new cars fueled headline inflation measures by pushing up prices for new and used vehicles.

Aichi Amemiya, senior US economist at Nomura Securities, said a continued shift in consumer spending from goods to services could help calm inflation. Signs of improving transportation costs and auto production suggest that inflationary pressure may start to ease early next year, although it is expected to remain elevated in December, Amemiya said.

Food and energy prices, which had been pushed up by pandemic disruptions as well as weather and geopolitical factors, also showed signs of easing.

Covid-19 continues to be a generic factor, with the emergence of Omicron and the continued spread of Delta threatening economic expansion. Past viral outbreaks have put downward pressure on prices for travel, entertainment, and other services involving in-person interaction. However, a resurgence of Covid-19 could ultimately push inflation up by increasing consumer demand for goods and triggering the closure of factories and ports, Mr Amemiya said.

The dynamism of the labor market and the robustness of household savings stimulate both demand and cushion price increases. However, still high inflation is hitting consumer budgets.

Dallas resident Greg Chu noticed an increase in his gasoline costs earlier this year, an increase so large he said he took his car to a mechanic. But there was nothing wrong with his car: the problem was the much higher price of gasoline. The 27-year-old has made a habit of meticulously planning his day to cut down on driving. Since food prices started to rise last spring, he is also eating less in restaurants and buying less meat and dairy products at the grocery store.

“Inflation has changed the way I drive, shop and eat,” said Mr. Chu, who works as an accountant. “I can afford to pay these price increases, but at the cost of reducing my other expenses or savings, which I am not prepared to do. “

A shortage of available workers also affects inflation and the economy in general, causing companies to raise prices to offset rising labor costs. Companies are setting aside an average 3.9% of the payroll for pay increases next year, the highest since 2008, according to a survey by the Conference Board, a private research group.

Tip Hongchindaget said that while demand at his Charlotte, NC restaurant is booming, higher costs and scarce labor are choking his business. Soaring chicken prices wiped out what was once a reliable source of profit for its restaurant, Rice & Spice Thai Street Food. And although sales are strong, the shortage of workers prompted her to start closing for Sunday lunch.

“It happened like a storm, and it keeps coming,” she said. “I don’t think we can keep giving more people higher wages.”

Ms Tip said she is currently researching technological improvements that may require less manpower. She’s hesitant to raise prices after doing so earlier this year, especially since other Asian restaurants in the area haven’t raised prices much. “If we raise the price again this time, I’m pretty sure it will have an impact on sales,” she said.

Economists typically see the inflationary pressure of supply constraints ease in 2022 as sidelined workers return, consumer demand for goods cools, and production increases. However, they also expect these to be replaced by more persistent sources of price pressure such as rent and medical care.

Federal Reserve officials are closely monitoring inflation measures to assess whether the recent price spike will be temporary or lasting. One of those factors is consumers’ expectations for future inflation, which can prove to be self-fulfilling as households are more likely to demand wage increases and accept higher prices in anticipation of faster future price growth.

The typical consumer expects inflation a year from now to be 4.9%, the highest since 2008, according to a University of Michigan survey. The median inflation expectation in five years reached 3% in November, matching the readings for May and September, the highest since 2013.

The Fed’s governing body is holding a two-day meeting next week to see if officials will step up the pace at which it cuts asset purchases, paving the way for an interest rate hike in the first half of the year. next year to curb inflation.

Write to Gwynn Guilford at [email protected]

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