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October 2021 CPI: Inflation Rose At Fastest Rate Since 1990

November 11, 2021

The latest CPI numbers came out, and it isn’t pretty. The CPI rose 0.9% in October 2021. The year-over-year CPI now stands at 6.2%.

If you annualize that monthly rise in the CPI, then we are above 10% annual price inflation. I’m not saying this is the case yet, but it is important to do the math and point out the obvious.

The reality that inflation is broadening — and spreading to slow-moving categories like rent rather than staying confined to pandemic-disrupted ones like imported electronics and airplane tickets — could unsettle Fed policymakers, because it increases the risk that price pressures could last. That’s especially true as labor proves scarce and participation in the job market shows little sign of picking up, fueling wage gains, Ms. Meyer said.

“It’s obviously getting uncomfortable for the Fed,” she said.

Officials have avoided overreacting to an inflation surge driven by supply chain problems, worried that doing so would hurt the economy unnecessarily. If the current trends persist, they will likely come under growing pressure to hasten their plans to pull back economic support by ending their stimulative bond buying program and raising interest rates sooner and more quickly.

Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said on Bloomberg television on Wednesday that inflation data was “eye popping” — but that the Fed was also paying attention to the many jobs still missing. She said it is too soon to suggest that officials will need to speed up their process of tapering off bond buying, a process they just announced, and a precursor to rate increases.

“It would be very premature to start asking whether we should quicken the taper,” Ms. Daly said. Stock markets largely shrugged off the data, but a key measure of the bond market’s expectations for inflation over the next five years rose to a new high of 3.10 percent shortly after the report was issued. Investors expected inflation to average about 3 percent a year for the next five years, essentially, far higher than any time in the decade before the pandemic hit.

For policymakers and investors alike, it is difficult to predict when price jumps might moderate. Many are intertwined with the reopening of businesses from state and local lockdowns meant to contain the coronavirus; the economy has never gone through such a widespread shutdown and restart before.

But many policymakers have become wary that uncomfortably high inflation might linger. Consumers have been increasing their expectations for future price gains. Households expecting to face climbing grocery, department store and gas bills might demand pay raises — setting off an upward cycle in which wages and prices push one another ever upward.

Key measures of price expectations haven’t climbed into the danger zone yet, officials including Richard H. Clarida, the Fed’s vice chair, have said. And there are still reasons to believe that today’s price pop will fade. Households are sitting on huge savings stockpiles amassed during the pandemic, but should theoretically spend those down now that government support programs like expanded unemployment insurance have fully or mostly lapsed.

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