The consumer price index (CPI) jumped 0.9% in October and surged 6.2% from a year ago. That was the fastest pace since Iraq invaded Kuwait on the eve of the Gulf War in the fall of 1990. On an apples-to-apples basis, inflation is approaching levels not seen since the early 1980s.
Energy and food prices continued to accelerate on the heels of strong demand, disruptions to refining capacity from Hurricane Ida, global supply chain problems and OPEC discipline. Prices at the gas pump alone jumped 6.1% in the month and are up nearly 50% from a year ago.
The surge in the cost of proteins at the grocery store - meat, poultry, fish and eggs - has been particularly pronounced, rising 1.7% from last month and up nearly 12% from a year ago. Roasts and steaks are up a stunning 24.9% and 24.2% from a year ago, respectively. Stay with turkey for Thanksgiving, as it declined a bit and was up only 1.7% from a year ago.
Core (ex food and energy) CPI inflation rose a hotter than expected 0.6% in October and 4.6% from a year ago. That was the strongest annual surge in the core CPI since 1991.
Shelter costs are picking up but lag actual changes in rents and ownership costs. Those are starting to accelerate; the move up in shelter costs alone, which make up a third of the CPI, could add more than one half of one percent to overall CPI measures next year. The upward pressure on core CPI, which the Federal Reserve has greater control over, will be even greater.
Hotel room and rental car rates rebounded as business and leisure travel returned. Airfare was down but is soaring for the holiday travel season. Hurricane Ida, severe flooding in the Northeast and fires in the West caused widespread damages, which spurred the demand for goods. Used vehicles prices rebounded, while new vehicle prices continued to climb. New truck prices are now up at a double-digit pace from a year ago and the fastest since the early 1980s.
Insurance companies have taken it on the chin as the costs to repair, replace and provide rentals for damaged vehicles soared. Vehicle insurance was flat for the month but up more than 6% from a year ago. Many insurers are refusing to cover the damage caused by extreme weather events, including floods and fires.
Prices of furniture and appliances moved higher as shortages persisted, with gains of 0.8% during the month and up 6.1% from a year ago. Furniture and bedding alone are up 12% from a year ago. Even sporting goods continued to surge in price despite cooling consumer demand for home workouts.
Medical care services have begun to move up to address decelerating demand during the height of the pandemic. Those gains are being driven by a large backlog for routine tests and the return of elective surgeries. Health insurance costs rose during the month, but remain down 6.4% on a year-on-year basis.
Inflation is sizzling and will likely get hotter before it cools. The costs for low-wage households to cover their commuting costs, grocery bills and rents are eating into the jump they have seen in wages. The public is angry. The Fed is getting nervous.
Copyright © 2021 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.