US consumer prices rise at fastest pace in three decades

US consumer prices jumped in October at the fastest pace in three decades, as bottlenecks and other supply-chain disruptions intensified and inflationary pressures spread further throughout the economy.

The consumer price index published by the Bureau of Labor Statistics on Wednesday rose 6.2 per cent in October from a year ago – the fastest annual pace since 1990 and a sharp increase from September’s levels of 5.4 per cent.

Month-over-month price gains accelerated sharply, with a jump of 0.9 per cent reported in a significant pick-up from the August to September period, when prices rose 0.4 per cent.

Once volatile items such as food and energy were stripped out, prices rose 0.6 per cent for the month, well in excess of the previous reading of 0.2 per cent. On an annual basis, those costs increased at a 4.6 per cent clip. In September, it stood at 4 per cent.

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The data reinforces the view that inflationary pressures are proving far more persistent than initially expected – a growing risk the Federal Reserve acknowledged last week when it announced its plans to begin scaling back its $120 billion (€104 billion) asset purchase programme later this month.

While costs have moderated in recent months in some sectors most sensitive to the economic reopening from the coronavirus pandemic, including used cars and travel expenses, prices are picking up elsewhere.

Housing costs

Rents and other shelter-related costs, which represent about a third of CPI, have steadily risen in recent months, while certain services are also becoming more expensive as employers raise wages to grapple with a severe worker shortage.

Worsening supply-demand mismatches have also pushed up energy prices, and pernicious bottlenecks have made many goods, from household items to new cars, considerably more expensive.

Senior Fed officials – including chair Jay Powell and Richard Clarida, the vice-chair – still contend that the current imbalances will eventually recede as global supply chains and labour markets adjust, meaning inflation will ultimately prove "transitory" and fade over time.

But Mr Powell and Mr Clarida have indicated the Fed is monitoring the situation closely and stands ready to use the central bank’s tools if necessary.

Short-dated US government bond yields, which are most sensitive to changes in monetary policy, surged followed the report, with the two-year Treasury trading roughly 0.06 percentage points higher at 0.48 per cent. The three-year note jumped 0.07 percentage points to 0.8 per cent, and yields on the benchmark 10-year bond climbed 0.04 percentage points to trade around 1.48 per cent. – Copyright The Financial Times Limited 2021