More expensive food, rents stimulate US inflation; further increases planned
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By Lucia Mutikani
WASHINGTON (Reuters) – Consumer prices in the United States rose sharply in September as Americans paid more for food, rent and a range of other goods, pressuring the Biden administration to urgently address strained supply chains, which hamper economic growth.
While prices are expected to rise further in the coming months following a recent surge in energy product costs, Wednesday’s Labor Department report could test Federal Reserve Chairman Jerome Powell’s repeated assertion that a high inflation is transient. Powell and the White House blamed supply chain bottlenecks for high inflation.
Supply chains have been erased by robust demand as economies emerge from the COVID-19 pandemic, thanks to more than $ 10,000 billion in global economic stimulus, about half of which is in the United States. The coronavirus has caused a global shortage of workers needed to produce raw materials and move goods from factories to consumers.
US President Joe Biden is expected to speak later Wednesday on supply chain issues following meetings with retailers, unions and other stakeholders. In June, the White House formed a task force and appointed a “bottleneck” czar to push private sector companies to tone down supply chain grunts.
“Inflation is no longer ‘transient’,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles. “Supply chain bottlenecks are getting worse. The stalemate is not expected to ease anytime soon despite the latest White House intervention.”
The consumer price index rose 0.4% last month after rising 0.3% in August. Food prices jumped 0.9% after rising 0.4% the month before. The biggest increase in food prices since April 2020 has been driven by a rise in the cost of meat.
The rent equivalent of the owners’ primary residence, which is what a landlord would receive by renting a house, increased 0.4%. This was the largest gain in five years and followed a 0.3% increase in August. Rent for a principal residence jumped 0.5%, the largest increase since May 2001.
Rents are rising as demand for housing in cities rebounds after a pandemic-induced exodus to suburbs and other low-density places. Economists expect rents, which account for nearly a third of the CPI, will be a major source of inflation in the months to come.
“If house prices continue to soar, it could mean higher inflation is more entrenched than originally thought,” said Will Compernolle, senior economist at FHN Financial in New York City.
Food and rents accounted for more than half of the increase in the CPI. Economists polled by Reuters had forecast the headline CPI to rise 0.3%.
In the 12 months ending in September, the CPI rose 5.4% after rising 5.3% year-on-year in August.
Although gasoline prices rose moderately from August, prices at the pump have accelerated in recent months after the price of Brent crude rose above $ 80 per barrel. The prices of natural gas have also increased.
Wall Street shares traded in a mixed fashion. The dollar fell against a basket of currencies. Yields on two-year Treasury bills, which are sensitive to changes in interest rates, have increased.
EXPENSIVE NEW CARS
Excluding the volatile components of food and energy, the CPI rose 0.2% after edging up 0.1% in August, the smallest increase in six months. In addition to rents, the core CPI was boosted by a 1.3% increase in the cost of new motor vehicles, which marked the fifth consecutive month of gains above 1%.
A global semiconductor shortage has forced automakers to cut production. The average price of a new motor vehicle exceeded $ 45,000 for the first time in September, according to Kelley Blue Book, a vehicle valuation and automotive research company in California.
There were also increases in furniture and household maintenance prices, with furniture and bedding posting the largest increase since March 1988. Consumers also paid more for auto insurance.
Although the prices of airline tickets and used cars and trucks fell, economists expected a rebound, noting that air travel resumed as infections caused by the Delta variant of the coronavirus declined. Auction data indicated higher prices for used motor vehicles.
Core CPI rose 4.0% year-on-year last month, matching August’s gain.
Accelerating wage growth is also putting upward pressure on inflation. The government announced last week that the average hourly wage rose the most in seven months on an annual basis in September due to labor shortages.
With the number of people voluntarily leaving their jobs at an all time high in August and at least 10.4 million vacant positions, wage inflation is expected to rise further.
“The right place to look for inflation is not only in the so-called inflation data itself, but also in the tightened labor market and associated wage growth,” said Andrew Hollenhorst, chief economist American at Citigroup in New York.
The September CPI report has no impact on the Fed’s timing to start cutting its massive monthly bond buying program. The US central bank signaled last month that it could start cutting back on asset purchases as early as November.
Economists expect the announcement to come at the policy meeting on November 2-3. Rents tend to be inflexible and could keep inflation high.
“More persistent and persistent factors are becoming more prevalent, to which the Fed is more likely to respond,” said Michelle Meyer, chief US economist at Bank of America Securities in New York.
The Fed’s preferred measure of inflation for its flexible 2% target, the basic personal consumption expenditure price index, rose 3.6% in the 12 months through August, increasing by the same margin for a third consecutive month.
September data will be released later this month. The Fed last month raised its core PCE inflation projection for this year to 3.7% from 3.0% in June.
High inflation and motor vehicle shortages led economists to anticipate that economic growth would slow to below an annualized rate of 3% in the third quarter. The economy grew at a pace of 6.7% during the April-June quarter.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)