Annual inflation in the United States has risen at the fastest pace in three decades, continuing pressure on the Federal Reserve and the White House as they try to adjust policy in a turbulent time marked by strong consumer demand and skyrocketing prices, data released on Friday. for sofas, cars and residences.
According to the Personal Consumption Expenditures price index, which is the inflation indicator preferred by the central bank, prices increased by 4.4 percent until September. That’s past months to become the fastest rate of increase since 1991.
From August to September, prices rose 0.3 percent, in line with economists’ expectations and slower than the rapid figures released earlier in the summer. Policymakers may take this as a sign that inflation is on the decline, albeit still fast on an annual basis.
numbers came as separate data It showed that wages and benefits were collected for working Americans, and particularly those in service occupations, in the three months through September. Rising wages are good news for workers, but may worry economic policymakers as a sign that price increases will continue as employers try to cover rising labor costs.
Fed chairman Jerome H. Powell increasingly acknowledges that inflation is taking longer than central bankers expected. Fed officials believe inflation will fall as the supply chain unravels and consumer demand cools, but it remains unclear when that will happen. Treasury secretary Janet L. Yellen next year.
However, the current rate of inflation is disturbing political problem It created a delicate balancing act for President Biden and for the Fed, which is still trying to get the labor market back to full strength.
Data released on Friday confirm what more timely inflation measures are such as the Consumer Price Index has already shown: price increases are unusually brisk in the US. This is largely because supply chains are trying to keep up with strong demand due to virus-induced factory closures, congested ports and a shortage of transit workers, among other factors. The combination made it difficult to buy a kitchen table or a used car and caused the prices of many goods to rise sharply.
personal spending It continued at a solid pace in September, data released on Friday showed slower than the previous month but up 0.6 percent from August, as economists expected.
Consumption continued even as an income measure including social assistance payments fell in September; this decline came primarily because the government gave less money to households. Personal income fell 1 percent last month as pandemic unemployment insurance expansions expire and other pandemic relief programs are completed or paid less.
But even as state aid declines, labor income rises. New data shown That Americans earn more at work: A measure of the cost of employment that tracks wages and benefits rose 1.3 percent in the third quarter, more than 0.9 percent of economists expected, and it’s the fastest pace in the data since the series began in 1996.
On an annual basis, the Employment Cost Index rose 3.7 percent, the fastest since 2004. Wage increases are rapid, especially in service industries, which are struggling to attract workers as they reopen from pandemic lockdowns.
The Fed has been closely watching both wage and inflation expectations, which have risen in recent weeks, as it tries to assess whether price increases could spiral out of control.
“The risk is that continued high inflation is starting to cause price and wage makers to expect extremely high inflation rates in the future,” Powell said. said last week. If inflation had seemed likely to remain high, “we would certainly use our tools to maintain price stability while also taking into account the consequences of our maximum employment target.”
Understand the Supply Chain Crisis
As prices rise, the Fed prepares to slow down its large-scale bond purchases, which it uses to lower long-term borrowing costs and support the economy. The central bank buys $120 billion in Treasury and mortgage-backed securities, but is preparing to announce its plan to slow that program next week. Mr Powell said buying could stop altogether by mid 2022.
This would leave the Fed in a position to raise its more traditional and arguably more powerful tool, the policy rate, if it needed to stifle price increases. This rate has been set at close to zero since March 2020.
When the Fed raises interest rates, it becomes more expensive to borrow money to buy homes, cars, and washing machines. As demand cools, supply catches up and price rises, even reversing, lowering inflation.
But the downside is that slower consumption and economic growth also lead to less job expansion and hiring. Slowing down the job market is an unattractive prospect in the early stages of the pandemic, following the lockdown and at a time when millions of people are unemployed as health and childcare concerns persist.
The Biden administration is trying to ensure that price concerns don’t hurt its economic agenda. Ms Yellen said over the weekend she expects inflation to ease by mid-2022.
“Americans haven’t seen inflation like we’ve had for a long time,” Ms Yellen said on CNN’s “State of the Union” program on October 24. “Wait for this to end while we get back to normal.”