The Day – Consumer prices up 5.7% from last year, fastest in 39 years
WASHINGTON – Consumer prices in the United States have risen 5.7% in the past year, the fastest pace in 39 years, as spike in inflation confronts Americans in the season of holiday shopping.
The November increase, reported by the Commerce Department on Thursday, follows a 5.1% increase for the 12 months ending in October, continuing a series of annual price hikes well above the inflation target of 2% set by the Federal Reserve.
Consumer spending, which accounts for 70% of economic activity in the United States, rose 0.6% in November, a solid gain but smaller than October’s 1.4% increase.
Personal income, which is fueling future spending increases, rose 0.4% in November, slightly lower than October’s 0.5% increase. Both gains came after a 1% drop in income in September, the month in which government benefit programs such as expanded unemployment benefits ended.
The large jump in the Commerce Department’s price indicator was similar to the rise in the Consumer Price Index, up 6.8% for the 12 months ending in November, also the largest increase in this measure in 39 years.
While the CPI is the most well-known price indicator, the Federal Reserve prefers to follow the price index of personal consumption expenditure in setting its interest rate policies to fight inflation. The PCE price index tracks the actual purchases that consumers make each month, while the CPI tracks a fixed basket of goods.
For the month of November, the PCE price index rose 0.6%, slightly lower than October’s monthly gain of 0.7%. Core inflation, which excludes volatile energy and food prices, rose 0.5% in November and 4.7% in the past 12 months. It was the fastest pace for basic reading since a 5.1% increase in the 12 months ending September 1983.
Republicans argue that the massive inflation gains are proof that President Joe Biden’s economic policies aren’t working and are actually hurting Americans whose incomes don’t keep up with rising prices.
The administration, however, points to the country’s rapid reopening following a pandemic-triggered recession, an economic event unprecedented in our lifetime.
Suppliers have been unable to meet demand, driving prices up sharply and clogging the country’s ports with cargo that cannot be unloaded quickly enough.
The Federal Reserve announced last week that it was stepping up the pace of change to combat inflationary pressures in the hope that it could raise interest rates next year perhaps three times to slow growth and prevent inflation from spiraling out of control.
While the Fed has stopped calling the rise in inflation transient, officials in the Biden administration continue to insist that the price spike seen now will begin to fade over the next year as that supply chain issues will be resolved. They noted that energy prices, including the cost of gasoline, have already started to fall.
The government said on Wednesday that the overall economy, as measured by gross domestic product, grew at an annual rate of 2.3% in the July-September quarter, up from a previous estimate of a slightly slower gain of 2.1%.
Economists expect faster growth of perhaps up to 7% in the current quarter, although some analysts say the rebound could be jeopardized if the new omicron COVID variant continues to spread and triggers another shutdown of the economy.