Inflation probably sped up in October, dashing Washington’s hopes for a quick slowdown.
White House officials have embraced a key talking point as a bout of high inflation hits consumers and hands Republicans ammunition to argue against President Biden’s policies: Price gains may be faster than usual, but at least they are slowing down from rapid summertime readings.
Data to be released on Wednesday is likely to eliminate that shred of comfort.
Consumer price inflation probably picked up to 0.6 percent last month from September, a Labor Department report is expected to show, faster than the prior month’s increase of 0.4 percent and the fastest pace since June. Even so-called core price gains, which strip out products like food and fuel, are expected to accelerate.
Those big October gains will mean that prices overall have climbed by 5.9 percent over the past 12 months, with the core index up 4.3 percent, based on the median estimate in a Bloomberg survey of economists.
Those inflation rates would be far faster than the 2 percent annual gains the Federal Reserve, which has primary responsibility for maintaining price stability, aims for on average over time. While the Fed sets its goal using a separate measure of inflation — the Personal Consumption Expenditures index — that too has picked up sharply this year. The C.P.I. reports come out faster, and help to feed into the Fed’s favored gauge, so they are closely watched by economists and Wall Street investors.
Administration officials and Fed policymakers alike have spent months emphasizing that inflation, while high, is likely to fade. But they have had to revise how quickly that might happen: Supply chains remain badly snarled, and demand for goods is holding up and helping to fuel higher prices. As wages begin to rise in many sectors amid labor shortages, there are reasons to expect that some employers might charge their customers more to cover climbing worker costs.
“It is now clear that this process will take longer than initially expected, and the inflation overshoot will likely get worse before it gets better,” Goldman Sachs economists wrote in a research analysis this week.
The factors that probably pushed up inflation in October were varied: Used and new car shortages have sent prices skyrocketing, supply chain issues have made furniture costlier, labor shortages are raising service-industry price tags, and rents are rising after a weak 2020. In the headline data, food and fuel prices have picked up sharply.
It is difficult to predict when those trends might moderate. Many of them are intertwined with the reopening of businesses from state and local lockdowns meant to contain the coronavirus, and the economy has never gone through such a widespread shutdown and restart before.
But policymakers have become increasingly wary that price gains that are too quick for comfort might linger. While they were willing to overlook a burst of temporary inflation, long-lasting gains would be more of a problem, potentially spurring the Fed to raise interest rates to cool off demand and contain price pressures.
Understand the Supply Chain Crisis
Covid’s impact on the supply chain continues. The pandemic has disrupted nearly every aspect of the global supply chain and made all kinds of products harder to find. In turn, scarcity has caused the prices of many things to go higher as inflation remains stubbornly high.
Almost anything manufactured is in short supply. That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.
First, demand for home goods spiked. Money that Americans once spent on experiences were redirected to things for their homes. The surge clogged the system for transporting goods to the factories that needed them and finished products piled up because of a shortage of shipping containers.
Now, ports are struggling to keep up. In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up. The chaos in global shipping is likely to persist as a result of the massive traffic jam.
No one really knows when the crisis will end. Shortages and delays are likely to affect this year’s Christmas and holiday shopping season, but what happens after that is unclear. Jerome Powell, the Federal Reserve chair, said he expects supply chain problems to persist “likely well into next year.”
There are some 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.
If demand moderates, it could open the door for a return to normal, as supply chains catch up. To the extent that suppliers have responded to this moment by ramping up their productive capacity, some prices might even fall.
But the timing and extent of that return to balance is a wild card. In the meantime, Republicans are pointing fingers at Mr. Biden and Democrats, saying they are to blame for the run-up in prices because they handed checks to households and enacted other pandemic-tied policies. They have labeled the moment “Bidenflation.”
The White House has tried to emphasize that higher prices are coming at a time when the country is staging a rapid economic rebound from a once-in-a-century disaster. And Mr. Biden has said that his new policies, including an infrastructure bill that cleared Congress last week, will over time expand capacity and help to cool inflation.
