The Consumer Price Index soared 6.8% year-over-year in November, exceeding the 6.7% forecast.
The reading shows the fastest pace of price growth since 1982, when Ronald Reagan was president.
Inflation has accelerated through the fall as the supply crisis and strong spending fueled price hikes.
Build Back Better just got a body blow. Joe Biden is facing the highest inflation since Ronald Reagan was president.
The Consumer Price Index — a commonly used measure of US inflation — rose 6.8% year-over-year in November, the Bureau of Labor Statistics said Friday. Economists surveyed by Bloomberg forecasted a one-year gain of 6.7%. The print shows inflation accelerating again from the October pace of 6.2% and reaching its highest level since 1982, when Reagan was in the middle of his first term as president.
On a month-over-month basis, the index climbed 0.8%. That exceeded the median forecast for a 0.7% jump and showed inflation cooling from the 0.9% surge seen in October. Though the year-over-year measure signals worryingly high inflation, the slowing pace suggests inflation might have peaked this fall.
Core CPI, which strips out volatile food and energy prices, ticked 0.5% higher through the month, matching the average forecast. Core measures are usually regarded as more telling of broad inflation trends, as they aren't influenced by sudden moves in gasoline or grocery prices.
The Friday release shows just how hard the supply-chain crisis hammered businesses and shoppers across the US. Port bottlenecks and goods shortages eased somewhat in November but remained a major strain on the recovery. The start of holiday-season spending and Black Friday sales led to strong demand crashing up against limited supply.
November also saw US gas prices peak before tapering off into December. The nationwide average reached $3.43 per gallon earlier in the month but has since crept slightly down to $3.35. A prolonged downtrend could pull broad inflation to lower levels, though it's unclear whether the Omicron variant will curb travel demand.
The print also ramps up pressure on Democrats as they push for another massive spending package. The party aims to pass the Build Back Better plan by Christmas, but red-hot inflation has led Republicans to link new spending to soaring prices.
Elevated inflation has also led Sen. Joe Manchin of West Virginia to express some trepidation toward passing the measure in 2021. The centrist Democrat said Tuesday that inflation is "not transitory" and the Senate should focus more on inflation risk than jamming through more spending.
"The unknown we're facing today is much greater than the need that people believe in this aspirational bill that we're looking at. And we've got to make sure we get this right," Manchin said during The Wall Street Journal's CEO Council Summit. "We just can't continue to flood the market as we've done."
With inflation endangering Biden's spending agenda and hurting Democrats' 2022 election hopes, the Friday data suggests the party has a tougher road ahead before price growth slows.
Where inflation heated up in November
The CPI report offers economists the first look at where prices soared the most last month. Energy costs fueled the bulk of the month's inflation, with the category seeing prices climb 3.5% in November. Gasoline prices saw the biggest jump of 6.1%, matching the pace seen in October. Fuel oil inflation slowed to 3.5% from 12.3%, according to the report.
Food prices rose 0.7% month-over-month, decelerating from October's pace of 0.9%.
Used car prices jumped 2.5% through November, matching the pace seen the month prior. The category fueled one-third of higher inflation in the spring before cooling off through the summer. The category is still up 31.4% year-over-year, more than nearly any other product.
Shelter inflation held at 0.5% month-over-month. The category has been closely watched in recent months. Such inflation tends to be stickier than other kinds, meaning it's less likely to reverse course if it speeds up. Though the US housing market has been white-hot throughout 2021, soaring home values have done little to drive shelter inflation higher.
Inflation concerns were stoked on Tuesday when consumer prices between May and June saw their largest one-month increase in 13 years, but bitcoin, often touted as a hedge against a weaker dollar, failed to respond in kind.
US stocks dipped at the open, while bitcoin was flat and then steadily dropped over the course of the morning and early afternoon. The price of the world’s largest cryptocurrency by market capitalization was lower by about 2%, below $33,000 for most of the day following the announcement of the CPI figures.
The asset was trading at $32,854 as of 1:10 p.m. ET Tuesday.
This has happened with past readings, as well. In May, bitcoin fell 7% on a day when CPI data showed prices rising at their fastest rate since 2008. Theoretically, with higher inflation, demand for assets that can serve as alternative stores of values to cash would rise – bitcoin among them.
“Bitcoin isn’t behaving like an inflation hedge anymore and will continue to remain heavy over expectations over higher yields,” Ed Moya, senior equity analyst at foreign exchange firm Oanda, said in a Tuesday note.
That inflation is viewed as transitory, however, could be a reason why the June report wasn’t enough of a catalyst to break bitcoin’s sideways trading, Moya added.
Bitcoin has long been heralded as a hedge against inflation mainly due to its finite 21 million supply of coins. The idea is that bitcoin serves a similar purpose to gold in protecting against reckless fiscal policies that devalue fiat currencies.
Billionaire investor Mike Novogratz once said bitcoin’s value has increased because governments are printing money like “toilet paper.”
Some bitcoin bulls, however, maintain that the cryptocurrency will still prove its purpose one day.
“Bitcoin is still a hedge for inflation in the long run for most investors,” John Wu, president of Ava Labs, the team behind the altcoin avalanche, told Insider.
He continued: “However, given the amount of new investors in the space, there are investors that think of it as a risk asset and those incremental investors may be selling in the short term as a source of fund.”
But it seems that the digital asset is holding firm at its $30,000 support level the more it gets tested, Julius de Kempenaer, senior technical analyst at technical analysis platform StockCharts.com, told Insider.
“As a result, an eventual break below this level will become more and more meaningful,” he said. “If and when this happens, $20,000 is on the cards as the next level of support to watch.”
Computer chipsPresident Joe Biden holds a semiconductor chip at the White House in Washington, U.S., February 24, 2021.
Jonathan Ernst/Reuters
An ongoing computer-chip shortage has affected cars, iPads, and dog-washing technology alike. Chipmakers like Intel had already seen production issues pre-pandemic, but as with many industries, COVID-19 brought a variety of new supply-chain issues. The chip shortage is a problem for consumers wanting basically anything with a computerized component, which is much of the economy. Take cars as an example.
The semiconductor shortage has hit automakers the hardest. In January, the consulting firm Alix Partners estimated the automotive industry would lose $61 billion in revenue from the shortage this year. As Insider’s Katie Canales reported, demand for chips has gone up as consumers scrambled to buy cars and other technologies that use them.
But as more cars went into production, chip competition went up. Since then, many carmakers have been forced to shut down plants and prioritize which models they produce, while car prices at dealerships have continued to go up.
Last week, Tesla CEO Elon Musk said the semiconductor shortage has caused “insane difficulties” for the electric carmaker. Even Apple — a company that many thought would be able to dodge the shortage after it started making its own high-powered computer chips last year — said it will delay production on its iMac and iPad.
Used cars and rental cars
Jose Luis Pelaez Inc
Buyers are still looking for vehicles, creating a competitive used-car market. As USA Today reported, used-car prices are on the rise as the aforementioned chip shortages affect new-car production, and buyers have turned to older ones instead, while Axios reported the average price of a used car has hit $17,609.
A UBS note estimated that in April, used cars saw their largest monthly price increase in 68 years of tracking, with prices rising between 8.2% and 9.3%.
If you’re looking to rent, you might also be out of luck: Insider’s Brittany Chang reported on the “perfect storm” hitting rental cars right now, with prices surging and demand increasing. Americans are itching to go on vacation this summer, as more people are vaccinated and some restrictions loosen. That’s leading to far more demand — but rental-car companies had sold off parts of their fleets early into the pandemic, leaving fewer cars to go around.
It’s not all bad news for used-car lovers, though: As USA Today reports, the trade-in market is hot, too, meaning your old car could be worth more right now.
Demand for fuel and interest in travel has risen as vaccination rates have increased. Lower gasoline-production rates have also made the commodity more valuable, as OPEC has been slow to curb production cuts.
Gas prices have skyrocketed in recent months, jumping 22.5% in March from the previous year, according to the US Bureau of Labor Statistics’ Consumer Price Index. Much of the surge in gas prices started with the extreme Texas freeze, which halted a fifth of the country’s oil-refining capacity in its tracks for weeks at a time.
Plastics and palm oil
aydinmutlu/Getty Images
The devastating winter storms in Texas also left their mark on the plastics industry. As Insider’s Natasha Dailey reported, the state is a key plastics exporter — and the storms made many plants, which are difficult to reactivate, press pause.
According to the Financial Times, rising plastic prices have led to an increase in packaging costs. Citing data from Mintec, the Financial Times reported that those costs have increased by nearly 40% from the start of 2020, marking “historic highs.”
Palm oil, which is in a majority of those packaged products, also saw its prices climb, according to the Financial Times. That’s due to yet another labor shortage; the industry had already been contending with finding more sustainable production methods.
Trucking
A contract port truck driver, Giraldo has seen work dry up as imports slow during the coronavirus outbreak. He gets fewer than four hauls a week, compared with at least 12 in normal times.
AP Photo/Marcio Jose Sanchez
The Wall Street Journal reported that increased shipping demand has combined with a lack of drivers and trucks to result in climbing shipping costs.
In September, Insider’s Rachel Premack reported that pay for truck drivers was on the rise, coming in at “record-smashing levels.” But the pay hike — and increased demand — comes after an exodus of drivers in 2019; Premack reported at the time on what some called a “trucking bloodbath,” as trucking companies saw profits fall, with some even going bankrupt.
Now demand is surging, according to The Journal, and if everything continues as is, that gap could deepen.
Homes and vacation houses
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.
Saul Loeb/AFP/Getty Images
The US was facing a shortage of 3.8 million homes as of April, according to Freddie Mac. Home builders have been struggling to keep up with demand as remote work fuels interest in spacious housing, with house prices rising at their fastest pace in 15 years, The Wall Street Journal reported. Lumber prices are also driving the cost of new homes even higher.
Even vacation-home rentals are at an all-time high. A house in the Hamptons rented for $2 million this summer, and 85% of vacation rentals in popular destinations like Cape Cod, the Outer Banks, and the Jersey Shore are booked through August, according to the rental site VRBO.
Lumber
Justin Sullivan/Getty Images
If you’re wondering why the houses around you are getting more expensive, look to their component parts. No, seriously: Lumber prices have soared, and, as Insider’s Ayelet Sheffey and Libertina Brandt reported, builders are even increasing house prices in an attempt to offset demand.
It’s due to another pandemic disruption, as lumber mills were forced to temporarily close for safety concerns. When they reopened, they couldn’t keep up with a scorching-hot housing market, goosed by a work-from-home economy, record low mortgage rates, and the need for personal space during the pandemic.
According to an April analysis from the National Association of Home Builders, soaring lumber prices added $36,000 to the cost of a new home. Lumber prices “remain stubbornly high,” according to the report, due to mills shutting down, unexpected demand from big-box retail and DIY-ers, and tariffs imposed on Canadian lumber.
Household products like toilet paper and tampons
Kathrin Ziegler/Getty Images
Many household goods including toilet paper, diapers, and tampons are also facing supply problems.
One of the biggest producers of the pulp used to create toilet paper told Bloomberg that port delays and high shipping costs are causing companies to push delivery dates back months.
The work-from-home lifestyle helped the furniture industry boom but to such an extent that customers are seeing delivery dates that are months out.
In February, La-Z-Boy executives said customers could expect delivery dates that are five to nine months out from their order dates. Other furniture companies like Kasala, a Seattle-based chain, said they don’t expect to get furniture parts until at least December.
The furniture shortage has been exacerbated by a spike in homeownership, as the number of available and unsold homes sits at record lows. In other words, a lot of new homeowners are waiting a long time for their new living-room sets.
Chicken
AP Photo/Matthew Mead
If you’ve been having trouble finding chicken wings, you’re not alone: They’re hard to come by as supply tightens. Insider’s Avery Hartmans reported that chicken-wing supply is dwindling while prices rise. It’s due in part to increased demand and shortages caused by devastating winter storms in Texas.
The Washington Post reported that shortages go beyond just wings, with all chicken harder to get ahold of. One phenomenon The Post notes: Fried chicken sandwiches, which have gained viral popularity in the past few years. McDonald’s has even launched its own. Insider’s Mary Meisenzahl reported that the KFC Nashville hot chicken has been so popular on TikTok that the chain is running out of the hot sauce for it.
Bacon and hot dogs
Getty
Bacon and hot dogs will likely be in short supply this summer.
The pig shortage dates back to the onset of COVID-19 and outbreaks in at least 167 meat-processing plants forcing almost 40 plants to close as of June 2020. As vaccination rates pick up and people prepare for summer vacations and cookouts, analysts told Insider’s Natasha Dailey demand will outstrip supply.
With pork companies still struggling to overcome lower production rates in 2020, the matter only intensified when high instances of disease hit the hog population this past winter.
Some companies are already seeing the impact on their shelves. In March, Costco said its supplies of cheese, seafood, and olive oil were running low.
General Mills said it has been forced to raise prices due to the delays increased shipping costs. Coca-Cola also raised prices to combat the supply-chain crunch. Neither company specified which products would be affected.
Coffee has also been hit by delays, Bloomberg reported in March. Peet’s and JM Smucker, the brands behind Folgers and Dunkin’ coffee, have said they’re facing rising costs. Reuters reported that in February, port delays pushed coffee prices to their highest point in more than a year.
Chlorine
Chlorine can kill germs, but alcohol is more effective.
Bill Oxford/ Getty Images
This summer pool owners will see the worst chlorine shortage in US history, according to CNBC.
Supplies of the chemical have been strained since a fire at the chlorine manufacturer BioLab in Louisiana in September. The price for chlorine used in pools has nearly doubled this past year and is expected to rise even more to meet demand this summer.
Insider’s Annabelle Williams reported that pool owners could help avoid the shortage by resorting to saltwater pools.
Corn
Cyndi Monaghan/Getty Images
Corn is a key crop for many products, including fuel and different foods. As supply concerns loom, corn prices are popping off, according to Axios.
There’s a few reasons that demand is so high: After an outbreak of swine fever in China, pig herds were “decimated,” according to Axios, leading to huge corn demand in China. That spike in demand is coupled with corn crops in Brazil and Argentina experiencing both bad weather and pandemic-related labor shortages.
Now corn prices are on a record-setting clip, rising by 16% in April alone.
And, as Fortune reported, there could be a domestic supply issue too. Droughts and a rough winter are both concerning — and if American crops can’t fill in the gaps, prices could rise even more.
Labor
AP Photo/Nam Y. Huh
Finally, a commodity unlike all the others is in surprisingly short supply: workers.
Major labor shortages are hitting businesses across America. As Insider’s Kate Taylor reported, chains like Dunkin’ and Starbucks are struggling to find workers — leading to reduced hours and hesitance on opening indoor dining back up.
There’s a few possible reasons that unemployed workers are opting not to return, according to Insider’s Ayelet Sheffey. They include workers making more on unemployment benefits than in their prior work as well as continued concerns over COVID-19 and the need to provide childcare at home.
As Insider previously reported, female tipped workers experienced lower tips and increased harassment during the pandemic.
One potential solution for ending this shortage, according to Taylor? Paying workers more.
The latest commodity seeing a price squeeze amidst shortages and high demand is used cars.
A note from UBS researchers led by Alan Detmeister found that not only did used-car prices climb in April, but the monthly price increase could be the largest in 68 years of tracking. It looks like prices may have risen by 8.2% to 9.3%.
Used cars have been in high demand due to a few of the factors driving the shortages all over the American economy. The economy is reopening, people are ready to spend money (perhaps from new stimulus checks), and they want cars – especially as more suburban areas boom with wealthy transplants. But new cars are being hit by a computer chip shortage that’s hitting the automotive industry hard.
As Insider’s Grace Kay reported, semiconductor shortages could cost automakers billions, and has already led to lower production rates for new cars. Even Elon Musk has said that Tesla’s suffered from supply chain and semiconductor woes. Cue a used-car boom, with the market heating up and trade-ins fetching higher prices.
Chart via UBS Evidence Lab.
UBS Evidence Lab
According to UBS, prices on used cars may only climb in the coming months, due to a lag in wholesale to retail pricing. New car prices are also likely to pick up, increasing by 1%.
Why there are so many shortages, and which ones may pick up next
It may seem that everywhere you look, a new product is in a shortage. Chicken, diapers, corn, gas, furniture: The list of shortages goes on, and will likely only grow amid economic reopening. That’s due to some of the same factors impacting used and new cars. Supply-chain issues have persisted throughout the pandemic, and factories shuttered for safety reasons need to crank back to life as demand steepens.
The climate crisis also has a role, with several domestic products in the US – such as plastic and gas – impacted by factors including the devastating winter storms in Texas. Droughts are impacting the worldwide corn supply amidst high demand; Insider’s Will Daniel reports that corn prices have jumped 142% in the past year.
UBS projects 12-month headline Consumer Price Index (CPI) inflation rising to 4.3% from 2.6%, “an enormous surge over just the past few months.” Economists’ median estimate for April CPI is 3.6%, per Bloomberg.
Chart via UBS Evidence Lab.
UBS Evidence Lab
UBS projects hotels and airfares will be next to see substantial price increases. Axios reported – in an article aptly titled “Our crazy, booked-up summer” – that summer travel in the US is about to boom, with a particular emphasis on domestic travel.
A recent report from the US Travel Association found 72% of Americans are planning a summer vacation in 2021; that’s compared to 37% last year. That probably won’t help the already intense rental car shortage.
Prices of common consumer goods rose faster than expected last month as widespread reopening accelerated the economic recovery.
The Consumer Price Index, a popular measure of overall inflation, gained 0.6% from February to March, according to data published by the Bureau of Labor Statistics. Economists surveyed by Bloomberg had expected an increase of 0.5%. The reading follows a 0.4% gain in February. A 9.1% surge in gasoline prices drove the bulk of the uptick.
Core inflation – which excludes volatile energy and food prices – increased 0.3%. That also exceeded the median estimate of a 0.2% month-over-month jump.
Consumer prices jumped 2.6% year-over-year, marking the largest increase since the pandemic began. The reading also exceeded the economist forecast of a 2.5% climb. The measure is somewhat skewed, however, by data from March 2020, when prices declined when the pandemic first froze economic activity. That drop artificially lifts the year-over-year figure by giving the latest measure a lower bar to clear.
“We expect year-over-year inflation to remain steady as the upward pressure of a fast-reopening economy and fiscal stimulus is counteracted by somewhat tougher year-over-year comps,” David Kelly, chief global strategist at JPMorgan Asset Management, said.
Still, the increases suggest inflation will strengthen through the economic recovery, as expected. Price growth trended below the Federal Reserve’s 2% target for decades, signaling consistently weak demand. Now, with businesses reopening, consumers deploying stimulus-boosted savings, and hiring picking up, economists expect inflation to come in above 2% for some time.
The Fed anticipated such a bounce and has dampened concerns that inflation will run rampant. The central bank adjusted its inflation target in August to pursue above-2% inflation for a period of time to counter years of below-target price growth.
Fed Chair Jerome Powell has said that, while reopening will drive stronger inflation, the effect will likely be “transitory” and quickly fade as the economy enters a new normal.
“It is more likely that what happens in the next year or so is going to amount to prices moving up, but not staying up. And certainly not staying up to the point where they would move inflation expectations above 2%,” Powell said in early March, adding the central bank will “be patient” in waiting to pull back on its ultra-accommodative policy.
Americans, however, aren’t yet buying Powell’s message. The median expectation for one-year inflation rose to 3.2% last month, its highest point since 2014. The estimate for three-year inflation edged higher to 3.1% from 3%. Though the Fed hasn’t clarified how high it’s willing to let inflation run, 3% price growth would be the strongest since the early 1990s.
While it’s true that inflation expectations have steadily landed above actual inflation for decades, expectations alone can drive inflation higher. Businesses tend to lift prices and workers usually demand higher wages when the country expects stronger inflation over the next year.
