The nation’s worst bout of inflation in decades got a little worse last month.
Inflation hit a 39-year high in November as an economy still grappling with the effects of the COVID-19 pandemic drove strong consumer demand as well as persistent supply-chain snarls and labor shortages.
The consumer price index jumped 6.8% from a year earlier, the fastest pace since 1982, as prices surged for staples such as food and gasoline, new and used cars, rent and physicians’ services, among other items, the Labor Department said Friday. That’s up from 6.2%, which was a three-decade high, in October.
After languishing below normal levels for most of the past decade, inflation has spiked since spring as COVID vaccinations increased and the economy reopened following last year’s government-ordered shutdowns.
The effects of higher prices are being felt by shoppers and invoked by President Biden’s Republican opponents as a campaign issue ahead of next year’s mid-term elections. And while many economists say inflation should ease substantially next year as supply bottlenecks unwind, the political fallout could cost the president support for his big social spending program.
“Not since the release of (Michael Jackson’s) Thriller have inflation pressures been this strong in the U.S.,” TD Economics wrote in a note to clients.
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Last month, prices rose 6.4% annually for groceries, with jumps of 13.9% for beef, 16.8% for pork, 8.4% for chicken and 8% for fish. Gasoline prices soared 58.1% over the past year, rising 6.1% monthly in November.
Used car and truck prices shot up 31.4% from a year ago and new vehicle costs climbed 11.1% as the industry continues to grapple with a chip shortage that’s curtailing new vehicle production.
Excluding volatile food and energy items, so-called core prices rose 4.9% annually, a new 30-year high. On a monthly basis, overall consumer prices increased 0.8% in November while core prices advanced 0.5%.
Although wages are also climbing as a result of the worker shortages, they’re not keeping pace with the soaring prices, squeezing lower-income households.
A recent drop in crude oil prices should filter through to pump costs and likely means overall inflation has peaked and should cool somewhat in December, says economist Bill Adams of PNC Financial Services Group.
But core inflation still has further to rise, says Ian Shepherdson, chief economist of Pantheon Macroeconomics.
Kathy Bostjancic, chief economist of Oxford Economics, expects inflation to remain elevated through early 2022 before supply and demand come into better balance and inflation softens significantly in the second half of next year.
Angela Kay, 60, who lives in the Chicago area, says she’s paying $5 a pound for sliced ham, up from $2.99 last year and a whole turkey has roughly tripled in price to about $2.50 a pound. Meanwhile, a restaurant breakfast for two of spinach omelet, pancakes, bacon and coffee has jumped from $22 to $38.
Kay says she’s shopping more at Costco or Sam’s Club rather than supermarkets and stretching leftovers into meals.
She also recently spent $9,000 for new kitchen cabinets, up from $6,000 for a larger kitchen five years ago.
“It most definitely has influenced my spending,” she says.
The pandemic has been at the root of the price increases.
Consumers who were already snapping up goods such as TVs and appliances while stuck at home during the health crisis began dining out and traveling more. Many were ready to splurge after they built up more than $2.5 trillion in additional savings from federal stimulus checks and enhanced unemployment benefit, as well as cutting back during the lockdowns.
But a supply network still hobbled by the pandemic wasn’t prepared for the buying binges. Many overseas factories are running at partial capacity. Shipping containers are in short supply. And many truck drivers and warehouse workers are still caring for kids at home or fearful of contracting COVID.
The rare collision of robust demand and skimpy supplies has triggered widespread product shortages and higher prices just as the holiday shopping season shifts into high gear.
Meanwhile, hotels, restaurants and stores are also struggling to hire workers, sharply pushing up wages and forcing outlets to further lift prices.
Although the price increases initially were largely confined to COVID-related products and services, like autos, air fares, hotels, they’ve broadened to include a wide range of items, including food, rent and gasoline.
Republicans in Congress largely have blamed President Biden for the inflation, pointing to the $1.9 trillion American Rescue Plan earlier this year that further stoked consumer demand with $1,400 stimulus checks for most individuals and the renewal of enhanced jobless benefits. GOP lawmakers are arguing Biden’s $2 trillion Build Back Better social spending plan also would worsen inflation.
In an effort to curtail the spiraling prices if they don’t soon fall, the Federal Reserve next week is expected to accelerate the winding down of its bond-buying stimulus, a move that would clear the way for interest rate hikes as early as March.
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