The inflation rate is running at its hottest pace in nearly four decades, as widespread supply disruptions, high consumer demand and worker shortages fuel a surge in prices.
Consumer prices soared by 5.7 percent in the year through November, according to the Personal Consumption Expenditures price index released by the Commerce Department Thursday. That topped the previous month’s rate of 5.1 percent, becoming the fastest pace increase since February 1982, when it hit 6.2 percent.
The string of annual price gains have far outpaced the 2 percent inflation target set by the Federal Reserve. Food and energy prices rose 4.7 percent in November from the prior year, which is also the highest since 1982.
Consumer spending, which accounts for 70 percent of US economic activity, rose 0.6 percent in November, a solid gain but below the 1.4 percent surge in October.
The inflation jump largely reflected increasing energy costs, which rose 34 percent from a year ago, and food costs, which rose 5.6 percent over that same time period. Services inflation rose by 4.3 percent in November, and goods inflation increased 8.5 percent — outpacing the 7.6 percent rate a month prior, the data shows.
“Consumers spent with less enthusiasm in November as they shifted their holiday shopping to earlier in the season and continued to contend with escalating prices and reduced product availability,” Kathy Bostjancic, chief US financial economist at Oxford Economics, told the Associated Press
.
Household spending data also released Thursday revealed that consumers saved less last month and that their consumption was largely unchanged after accounting for inflation. If consumer spending remains flat, the decrease in demand could help tame inflation.
Republican lawmakers say that massive inflation gains are evidence that President Biden’s economic policies are not working and are actually hurting Americans whose incomes are not keeping up with rising prices.
The Biden administration, meanwhile, has blamed the country’s rapid reopening following a pandemic-triggered recession. Suppliers have been unable to keep up with high demand, pushing prices up sharply and clogging the nation’s ports with goods that can’t be unloaded fast enough.
Last week, the Federal Reserve said it was accelerating the pace of change to fight inflationary pressures and that it may raise interest rates next year at least three times to slow growth and keep inflation at bay.
While the Fed has stopped calling the inflation increase “transitory,” the Biden administration insists that the price surges will fade next year as supply chain issues get resolved. It pointed to energy prices and the cost of gasoline as proof that prices have already started to fall.
The government reported Wednesday that the economy, as measured by the gross domestic product, grew at an annual rate of 2.3 percent in the July-September quarter, up from a prior estimate of a slightly slower 2.1 percent gain.
Some economists have projected GDP to grow more rapidly, with some high-end projections for the current quarter to hit 7 percent. But with the new surge of the coronavirus bolstered by the fast-spreading Omicron variant, there is some uncertainty if the economic rebound will continue, or the virus will trigger another shutdown of the economy.