US consumer prices

US consumer prices continue to rise


The consumer price index increased by 0.4% in September, bringing its advance over the past 12 months to 5.4%, the Bureau of Labour Statistics has reported.

The latest data release comes amid mounting concern that upward pressure on prices will last longer than policymakers and economists had expected, owing to continuing supply-chain bottlenecks, labour shortages and strengthening demand as the economy recovers from the Covid-19 pandemic. The monthly advance was driven mainly by sharply higher prices for food, shelter and petrol, which made up more than half of the increase. The food-at-home and petrol indexes each jumped by 1.2%. Energy price inflation has soared by a quarter over the past year, reflecting the recent surge in oil and natural gas prices. The core consumer price index (CPI), which excludes volatile food and energy prices and is closely watched by policymakers, climbed by a more modest 0.2% in September and 4% over the previous 12 months.

The Federal Reserve (Fed, the central bank) has cautioned in recent weeks that the spurt in prices may continue for longer than previously expected. Although supply-chain disruptions are likely to ease, the recent run-up in prices could feed expectations among consumers and businesses that higher inflation lies ahead. Widespread labour shortages are forcing many employers to raise wages and pass these higher costs on to customers in the form of higher prices. Soaring housing costs are another cause for concern. The rental component of CPI gained 0.5% in September, and the S&P CoreLogic Case-Shiller index, the leading measure of house prices, jumped by an annualised 19.7% in July—the highest in the index’s history. 

Supply-chain disruptions have become an increasingly urgent priority for the president, Joe Biden, and his administration. On October 13th Mr Biden announced that, among other measures, the port of Los Angeles, which is currently clogged with cargo, will begin operating 24 hours/day. Although such measures will help to address an element of the supply-chain issues, in actuality there is little that the Biden administration can do given that disruptions run the full extent of the supply chain, especially at points origination, primarily in Asia.

Impact on the forecast

We are increasing our estimate for annual inflation this year to 4.4% (from 4.3%). We now expect the rate to ease back to 3.2% (from 3% previously) in 2022 as economic growth stabilises, supply shortages ease, and the Fed starts tapering its asset purchases and raising interest rates.

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