WASHINGTON — The U.S. consumer price index rose 5.7% in the past year. This is the fastest pace since 1979. It’s a result of an increase in inflation that Americans are experiencing with the holiday shopping season underway.
Commerce Department reported the November increase on Thursday. This follows a 5.1% increase for the 12 month ending in October. It continues a string of annual price increases that has run well beyond the Federal Reserve’s 2% inflation target.
The 70% of U.S. economy is accounted for by consumer spending. It rose 0.6% in November. This was a solid increase but still below the 1.4% spike in October.
According to Kathy Bostjancic (chief U.S. financial economist at Oxford Economics), “Consumers were less enthusiastic in November because they moved their holiday shopping to later in the season and continued with escalating costs and reduced product availability.”
The personal incomes that fuel future spending growth, rose 0.4% in November. This was slightly less than the 0.5% increase recorded in October. These gains were achieved after a 1% drop in incomes in September which was the month when government benefits programs like expanded unemployment benefits ended.
The Commerce Department’s big price jump was very similar to that of the Consumer Price Index, which rose 6.8% in the 12 months ended in November. This is also the largest increase in this measure in 39 years.
The CPI is the most well-known price indicator, but the Federal Reserve prefers the Commerce Department’s personal expenditures price index when setting interest rates to combat inflation. The PCE price index tracks actual monthly purchases, while the CPI tracks a fixed market basket.
The PCE price index increased 0.6% in November, slightly less than the 0.7% monthly gain recorded in October. Core inflation excludes volatile energy prices and food prices. It rose 0.5% in November. Over the past 12 months, core inflation has increased 4.7%. This is the fastest rate of core inflation since September 1983’s 5.1% increase.
The overall inflation increase of 5.7% was the fastest increase in 12 months since the July 1982 5.8% increase.
Republicans claim that the large inflation gains are evidence President Joe Biden’s economic policies have failed and are actually hurting Americans whose incomes cannot keep up with rising prices.
However, the administration points out that the nation’s rapid opening after a recession caused by a pandemic is an unprecedented economic event in our lifetimes.
The supply chain has been unable meet demand, driving up prices and jamming the ports with goods that cannot be unloaded quickly enough.
Last week, the Federal Reserve announced that it was speeding up its efforts to combat inflation pressures. It also stated that it expected to raise interest rates next to three times in order to slow down growth and prevent inflation from spiraling out of control.
Although the Fed has now stopped calling the inflation rise transitory, officials from the Biden administration insist that the current price surge will recede next year once supply chain issues are resolved. They also noted that gasoline prices have fallen and energy prices have started to drop.
Wednesday’s government report showed that the economy as measured by gross domestic product grew at 2.3% annually in the July-September quarter. This is up from the previous estimate of a 2.1% increase.
Economists expect more rapid growth, possibly as high as 7.5% in the current quarter. However, some analysts warn that the rebound could be compromised if the COVID omicron variant continues spreading and triggers another shut down of the economy.