A worsening surge of inflation for such bedrock necessities as food, rent, autos and heating oil is setting Americans up for a financially difficult Thanksgiving and holiday shopping season.
Prices for U.S. consumers rose 6.2% in October over a year earlier, leaving families facing their highest inflation rate since 1990, according to the Labor Department, which says prices increased by 0.9% just from September to October.
Americans are now spending 15% more on goods than before the coronavirus pandemic, with inflation eroding strong gains in wages and salaries workers have seen in recent months.
That has created a political threat to the Biden administration and congressional Democrats and intensifying pressure on the Federal Reserve as it considers how fast to pull back on efforts to boost the economy.
Fueling the spike in prices has been robust consumer demand, which has run into persistent supply shortages from COVID-related factory shutdowns in China, Vietnam and other overseas manufacturers. America’s employers, facing worker shortages, have also been handing out sizable pay raises, and many have raised prices to offset their higher labor costs.
The jump in inflation is hardly confined to the United States. Prices have been accelerating in Europe and elsewhere, too, with annual inflation in the 19 countries that use the euro currency exceeding 4% in October, the most in 13 years, and energy prices rising 23%.
Supply-chain backups are part of the problem. Ports, trucking companies and railroads can’t keep up, and the resulting bottlenecks are swelling prices.
Surging inflation has gone beyond pandemic-disrupted industries into services, notably for restaurant meals, rental apartments and medical services, prices for which jumped 0.5% in October.
The accelerating price increases have hit lower-earning households especially hard because they spend a significant portion of their incomes on food, rent and gas.
Food banks are struggling to assist the needy, with beef, egg and peanut butter prices all rising.
Millions of households planning year-end travel, Thanksgiving dinners and holiday gift-giving will have to pay much more this year.
But the economy is managing to sustain its recovery from the pandemic recession, and consumers, on average, have plenty of money to spend. That’s in contrast to the “stagflation” of the 1970s, when households endured the double hardship of high unemployment and high inflation.
Many Americans also have gotten healthy pay raises, especially workers at restaurants, hotels and entertainment venues, where hourly wages are up more than 10% from a year ago. And families, on average, have built up substantial savings from stimulus checks and enhanced unemployment benefits.
“We’re still looking at an economy in a strong position,” said Sarah House, a senior economist with Wells Fargo. “The consumer is still going out and spending, which is why we are seeing the price gains we’re seeing.”
Used car prices wre up last month after having eased in August and September. The cost of a used vehicle has rocketed more than 25% from a year ago. With automakers sharply slowing production because of parts shortages, prices for new cars have risen for seven straight months.
Furniture is more expensive. Grocery prices have risen 5.4% in the past year, with the price of beef roasts up a whopping 25% and bacon up 20% over a year ago.
The Biden administration has attributed higher meat prices to consolidation in the meat-packing industry, with lack of competition enabling big processors like Tyson’s to raise prices. Meat-packing companies have countered that COVID-related shutdowns of plants and the difficulty in finding workers to staff the factories when they reopened are to blame.
Energy costs soared 4.8% just from September to October, with gasoline, natural gas and heating oil surging for the same reason that many other commodities have grown more expensive: Demand has risen as Americans drive and fly more, but supplies haven’t kept up. A gallon of gas, on average, was $3.42 nationwide Tuesday, according to AAA, up from just $2.11 a year ago. The Energy Information Administration has forecast that Americans will spend 30% more this winter on natural gas and 43% more on heating oil.
Fast-food prices soared 7.1% in October from a year earlier, the government said. That was the largest such increase on record, reflecting higher costs for beef and other foods as well as rapidly rising labor costs.
Economists still expect inflation to slow once supply bottlenecks are cleared and Americans shift more of their consumption back to pre-pandemic norms. Consumers should then spend more on travel, entertainment and other services and less on goods such as cars, furniture, and appliances. This would reduce pressure on supply chains.
But no one knows how long that might take. Higher inflation has persisted much longer than most economists expected.