Inflation was the highest it’s been in nearly 40 years in November

Walmart shopping
  • 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.

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Joe Manchin’s inflation worries are threatening Biden’s agenda, but we might have just passed the peak hysteria over runaway price hikes

joe biden joe manchin
President Joe Biden’s agenda depends on winning the support of Sen. Joe Manchin, and that depends on how he thinks inflation will get.

  • People have been worried about runaway inflation all summer, including Sen. Joe Manchin, but the latest CPI report showed a slowdown.
  • Some of the big pandemic-era drivers of inflation, like used cars, started falling back to earth.
  • Other worrisome “sticky” prices, like rent, haven’t shown signs of accelerating yet.
  • See more stories on Insider’s business page.

Summer is almost over, and the latest economic data suggests that the season’s inflation mania is also reaching an end.

Former Treasury Secretary Larry Summers kicked off the fears among the economic chattering class in March, calling Biden and the Fed’s approach the “least responsible” macroeconomic policy in 40 years – meaning even less responsible than the 2008 housing bubble that nearly brought down the world economy.

Fast forward to August’s consumer price index, and the argument in favor of “team transitory” – ie, Biden and the Fed – look stronger and stronger.

Consumer prices rose 0.3% in August, the Bureau of Labor Statistics said Tuesday, marking the second straight month of a slowdown in price growth. The Consumer Price Index – a popular measure of US inflation – still sits at decade highs on a year-over-year basis. But the slower growth seen in August suggests inflation could be tapering off and matching the predictions of the Biden administration and the Fed.

As the US economy began reopening in late spring and early summer, inflation leaped higher. June alone saw a 0.9% month-over-month increase in prices, the fastest price growth since the financial crisis.

Several Biden administration officials, including Labor Secretary Marty Walsh, said that they weren’t overly concerned about inflation this summer and they believed such price spikes would be temporary. Similarly, Fed Chair Jerome Powell said in Congressional testimony in July that most inflation was coming from transitory reopening shocks and should abate through the rest of the year.

On the other side of the debate, beyond Summers, the powerful moderate Sen. Joe Manchin cited worries about runaway inflation in a Wall Street Journal op-ed explaining his trepidation around Democrats’ $3.5 trillion social spending proposal. Tuesday’s read of easing inflation data could make trillions of dollars of a difference if it changes Manchin’s mind on what he may support.

Where inflation is easing up, and where it poses a lasting threat

The details of the report suggest that the worst could be behind us. Used cars and trucks have been one of the big drivers of inflation this year, with prices skyrocketing in the spring and early summer amid pandemic-caused supply shortages and a wave of new demand. Yet those prices actually declined in August, after seeing several double-digit monthly increases:

Other pandemic-affected sectors like airline tickets saw sharp increases in the spring, but had a 9.1% month-over-month decline in August as the Delta wave curbed demand.

In addition to those slowdowns in sectors highly affected by the pandemic, the August CPI report also showed few signs of more deeply rooted inflation that could prove a problem in the longer term.

The housing market is host to some of the most worrying inflation trends. Homebuyers have been facing an uphill battle all summer, with prices in many hot markets skyrocketing. Despite that, broad price increases for housing have remained modest. The shelter sub-index measured by the Bureau of Labor Statistics has risen steadily during the pandemic, but at a slower pace than overall inflation. August saw an even more modest increase in shelter prices:

So far, there hasn’t been an acceleration in the price of shelter. That’s a good sign for longer-term inflation, since house prices and rents tend to be “sticky,” meaning that increases tend to only ratchet up and declines in prices are very rare. The type of long-term inflation feared by Summers and Manchin would likely start showing up in the above chart, and it hasn’t materialized yet.

The August inflation report, then, makes it look like price increases are starting to simmer down. Team transitory is firmly in the lead.

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Inflation is cooling off just as economists, the Fed, and Biden expected

Costco shoppers outside one of its stores
Costco shoppers outside one of its stores

  • The PCE inflation measure rose 0.4% in July, signaling a slowdown in price growth from the prior month.
  • The print matched the median economist estimate. It was the slowest price growth since February.
  • The Federal Reserve and the Biden administration expect inflation to cool as the economy settles into a new normal.
  • See more stories on Insider’s business page.

Prices for common goods rose as expected in July as case counts rebounded and reopening-fueled demand softened.

The Personal Consumption Expenditures price index – one of the most popular measures of US inflation – jumped 0.4% last month, the Commerce Department said Friday. That matches the median forecast of a 0.4% increase. The print reflects a slowdown from June’s inflation rate and the slowest price growth since February.

On a year-over-year basis, the metric rose 4.2%. That just exceeded the median estimate of a 4.1% gain.

The Core PCE index, which excludes volatile energy and food prices, rose 0.3% through July, according to the report. That also matched economist estimates.

Core PCE is the inflation measure of choice for the Federal Reserve, which is tasked with ensuring inflation doesn’t rise too high. The central bank has said it will let inflation run above 2% year-over-year for some time as the economy recovers. Policymakers also expect the recent inflation surge to prove “transitory” and fade into 2022 as the US settles into a post-pandemic normal.

The PCE reading comes a few weeks after a similar inflation measure showed price growth easing in July. The Consumer Price Index climbed 0.5% last month, matching economist forecasts and marking a sharp deceleration from June’s 0.9% pace. The measure also rose 5.4% year-over-year, still the highest since 2008 but holding flat from June’s year-over-year level.

The slowdown from June’s inflation print suggests the demand boom seen through reopening could be petering out. Inflation soared to decade-highs through the spring and summer as vaccination helped the US reverse lockdowns. Economic activity rebounded, but where demand quickly shot higher, producers struggled to keep up. Bottlenecks and shortages left suppliers on the back foot, and the resulting gap between businesses’ supply and Americans’ demand drove prices higher.

Where inflation accelerated the most hints at a future slowdown. Sectors associated with reopening and the direst supply shortages saw prices leap the fastest. Used car prices leaped at least 7.3% for three months in a row before rising just 0.2% in July, according to the CPI report. Airline tickets, fuel, and service businesses also counted for much of the overshoot.

Since the categories are so closely linked to reopening, it’s likely inflation will cool off as supply chains heal and demand wanes, Fed Chair Jerome Powell said in a July 28 press conference.

“Essentially all of the overshoot can be tied to a handful of categories. It isn’t the kind of inflation that’s spread broadly across the economy,” he said. “And each of those has a story attached to it that is really about the reopening of the economy.”

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Prices keep rising but bitcoin still isn’t behaving like the inflation hedge it is said to be

Bitcoin golden physical coin illustration on United States Dollar banknotes.
  • Inflation concerns were further stoked Tuesday when the CPI saw its largest one-month increase in 13 years.
  • Yet bitcoin, widely viewed as a hedge against inflation, dipped lower after the CPI reading.
  • Some bitcoin bulls, however, maintain that the cryptocurrency will prove its use as a hedge against rising prices.
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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.”

Bitcoin’s price has been rangebound since a broader cryptocurrency crash in May.

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.”

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American inflation is extraordinary because the US economic recovery is ‘exceptional,’ JPMorgan says

New York shopping reopening
People walk through downtown Brooklyn on May 03, 2021 in New York City.

  • The US’ massive stimulus response and a unique labor shortage are fueling stronger price growth.
  • Yet the US is recovering faster than its peers and enjoying an unprecedented demand boom, JPMorgan said.
  • This soaring inflation is a byproduct of the country’s “exceptional” recovery, the bank said.
  • See more stories on Insider’s business page.

Inflation in the US is handily outpacing that of other advanced economies, and it’s probably thanks to the country’s stellar recovery, JPMorgan economists said.

With vaccines rolling out and lockdown measures slowly being lifted, the global economy is on the mend. Advanced economies lead the pack, benefitting from massive stimulus measures and more efficient vaccine distribution. Within that group, the US is among the best performers. The country’s economic output is expected to grow at the fastest rate since the 1950s, and some banks are already revising their estimates for 2022 growth higher on hopes for an even smoother rebound.

Yet concerns of soaring inflation have offset some reopening optimism. A popular gauge of US price growth rocketed 0.6% month-over-month in May and 5% year-over-year, exceeding estimates and marking the largest one-year leap since 2008. Where the Federal Reserve has said it expects the overshoot to be temporary, supply bottlenecks threaten to accelerate inflation further through the year.

JPM Inflation
va JPMorgan

The latest inflation readings are unusually strong, but are likely a byproduct of the US’ outperformance, the JPMorgan team led by Bruce Kasman said in a Friday note. Where the World Bank expects advanced economies to grow 5.4% in 2021, it sees US GDP expanding 6.8% and outpacing peers through the following two years.

The strength of the country’s rebound explains why inflation bounced back so suddenly, the team said.

“Although core inflation is tracking above the pre-pandemic pace elsewhere, the US has been exceptional for a number of reasons,” the JPMorgan economists added.

For one, the country’s service industry was hit particularly hard by the pandemic. Services prices dropped a full 2% at the peak of the downturn, surpassing the damage seen in other advanced economies.

The US also embarked on a far more ambitious stimulus rollout. Congress approved roughly $5 trillion in fiscal support during the health crisis. Much of that aid came in the form of direct payments and bolstered unemployment benefits. Once the country began to reopen, that support drove a demand boom that quickly lifted spending above its pre-pandemic peak. By contrast, spending remained weak in Western Europe, where stimulus wasn’t as large or direct, JPMorgan said.

Trends in the US labor market also contributed to the country’s strong recovery and faster inflation, the team added. Where employers laid off workers en masse at the start of the pandemic, they’re now rushing to rehire and service an unprecedented wave of consumer demand. Job openings soared to a record high in April, but the budding labor shortage also saw quits hit a record and payroll growth slow sharply.

The imbalance between worker supply and employer demand has since driven wages sharply higher as businesses struggle to attract workers. The jumps in labor costs and households’ purchasing power will further lift inflation, the economists said.

That pick-up isn’t to be feared, according to the Federal Reserve. The central bank has said it will let inflation run hot in hopes of driving stronger employment and wage growth through the recovery. President Joe Biden similarly praised the trend in a late-May speech, saying the jump in average pay is a “feature,” not a bug, of the US recovery.

Still, the Fed has hinted it has thought about pulling back on some of its monetary support. The Federal Open Market Committee is expected to maintain its accommodative policy stance but hint at plans to taper its emergency asset purchases when it concludes its June meeting on Wednesday.

Policymakers will likely recognize the spike in inflation rates but maintain that the economy remains far from the Fed’s “substantial further progress goals,” JPMorgan said. The first post-pandemic rate hike will probably arrive in late-2023, the team added, leaving plenty of time for the Fed’s ultra-easy policy to drive the recovery that JPMorgan is calling “exceptional” forward.

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Inflation nears decade high as reopening juices price growth across the economy

People shopping
Bolstered by three rounds of stimulus checks, US consumers are spending more.

  • The PCE price index – a popular inflation gauge – rose to 3.5% from 1.7% in the first quarter.
  • The measure signals that reopening and stimulus boosted demand, lifting prices at a nearly decade-high rate.
  • The Fed expects inflation to climb but only temporarily, before fading to normal levels.
  • See more stories on Insider’s business page.

The inflation that economists and the Federal Reserve have been warning of for months has arrived.

The Personal Consumption Expenditures price index – among the most popular measures of nationwide price growth – rose in the first quarter to 3.5% from 1.7%, the Commerce Department said Thursday. The reading marks the second-fastest pace of price growth since 2011, surpassed only by a 3.7% rate in the third quarter of 2020.

Core PCE inflation, which leaves out volatile food and energy prices, rose to 2.3% in the first quarter from 1.3%.

The stronger inflation was largely attributed to the quarter’s economic rebound. US gross domestic product grew at an annualized rate of 6.4% in the first three months of 2021, according to the Commerce Department. That rate signals the second-strongest quarter of expansion since 2003, surpassed only by the record-breaking surge seen in the third quarter of last year.

The quarter ending in March saw stimulus passed by former President Donald Trump and President Joe Biden drive a sharp increase in spending. Widespread vaccination and falling COVID-19 case counts also boosted economic activity as governments eased lockdowns and businesses reopened.

The uptick in price inflation mirrors a similar signal from the Consumer Price Index from earlier in April. The inflation gauge rose 0.6% from February to March, slightly exceeding economist forecasts. More remarkable was a 2.6% year-over-year gain that market the strongest jump in price growth of the pandemic era.

Inflation was at the center of the debate over new stimulus, with Republicans and even moderate Democrats warning that a colossal package could spark rampant price growth and create a new economic crisis.

On the surface, the latest data suggests those warnings were correct. Yet the Fed has long anticipated that any spike in inflation through the recovery would be “transitory” and quickly fade. For one, year-over-year measures of price growth are somewhat skewed by data from the first months of the pandemic, when initial lockdowns saw price growth turn negative. That dynamic, known as base effects, leaves a lower bar for the present-day readings to clear.

The pickup is also unlikely to reverse the decades-long trend of price growth landing below the Fed’s target, according to Fed Chair Jerome Powell.

“An episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future,” the central bank chief said Wednesday. “It is the Fed’s job to make sure that does not happen.”

The Fed adjusted its framework in August to pursue inflation that averages 2% over time, as opposed to targeting steady price growth at a 2% rate. The change signals the central bank will allow inflation to run above the 2% threshold for some time as the country recovers. Powell has said that the low-inflation environment of the late 2010s suggest the Fed can run the economy hot in hopes of reaching maximum employment.

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