US inflation jumped to levels not seen for 31 years in October as cost pressures tightened for more everyday items.
The bald figures, while a surprise to analysts and investors alike (and no doubt to those at the US Federal Reserve) don’t tell the full story.
The headline reading of the US Consumer Price Index (CPI) was a rise of 0.9% in October (after a 0.4% rise in September) to be up a huge 6.2% over the year.
That’s the largest year-on-year advance since November 1990 and followed a 5.4%. jump in September.
Even after volatile food and energy costs were stripped out, the CPI rose 0.6% in October from September, for an annual gain of 4.6%, also a 30 year high.
Part of the reason for the extent of the gain is that inflation for all of 2020 was low because of the pandemic and lockdown. For example the core inflation rise of 4.6% is nearly three times the 1.6% rise in October, 2020.
So the size of the rises this year are, to an extent being exaggerated by the so-called base effects from the low 2020 readings. But that is an increasingly smaller influence as cost pressures rise this year.
This comes after the publication of China’s consumer price index on Wednesday, which gained 1.5% year-on-year (from 0.7% in September) in October, while producer prices jumped 13.5% after the shock 10.7% gain the month before.
This report again underlines that Australia doesn’t have an inflation problem with the headline CPI at 3.0% and the core rate at 2.1% which is just within the Reserve Bank’s target range of 2% to 3% over time.
And while the Federal Reserve last week restated its belief that current high inflation is “expected to be transitory” saying “It remains the case that the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic,” the spread of the cost increases looks increasingly worrisome.
The rise was driven largely by increases in energy, shelter and food, among other categories.
But not by wages. US government data showed that even though hourly wages rose by 4.9% in the year to October, in real terms they fell – down 0.5% in the month and 1.2% over the year.
That’s despite a multitude of examples of labour shortages in every sector of the economy – from building, to manufacturing, accommodation, retail, teaching and more.
Fuel oil prices jumped 12.3% for the month, part of a 59.1% increase over the past year. Energy prices (including gas and coal) overall rose 4.8% in October and are up 30% for the 12-month period.
Used vehicle prices again were a big contributor, rising 2.5% on the month and 26.4% for the year. New vehicle prices were up 1.4% and 9.8%, respectively.
Food prices also showed a big bounce, up 0.9% and 5.3% respectively. Within the food category, meat, poultry, fish and eggs collectively rose 1.7% for the month and 11.9% year over year.
As well rental cars rose by 39%, hotels by more than 25%, furniture by 12%, TVs by 10.4%, electricity by 6.5%.
Shelter costs, which make up one-third of the CPI computation, rose 0.5% in the month and are now up 3.5% on a year-over-year basis. That sounds modest but the annual rate is rising The annual pace is the highest since September 2019.
“Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures,” according to Seema Shah, chief strategist at Principal Global Investors.
The rise in inflation means every American with a bank deposit seeing a fall in real rates of return (but those iwht loans are seeing the real cost of those loans fall).
US bond market traders pushed the yield on the key 10-year US bond by 11 points to around 1.56% – well short of the year’s high of 1.77% earlier this year.
Gold bulls pushed the Comex futures price up $US17.50 to $US1,848.30 an ounce at settlement on Wednesday.
Oil prices though fell by more than 3% on another rise in US stocks. The US West Texas Intermediate futures price fell nearly $US3 a barrel to be around $US81.34 going into Asian trading on Thursday.
