Inflation in US builds with biggest gain in prices since 1990

[WASHINGTON] Prices paid by US consumers rose from a year earlier by the most since 1990, reflecting broad-based increases and adding to evidence of building inflationary pressures as companies find more success in passing on higher costs.

The consumer price index increased 6.2 per cent from October 2020, according to Labor Department data released on Wednesday. The CPI rose 0.9 per cent from September, the largest advance in four months. Both advances exceeded all estimates in a Bloomberg survey of economists.

Higher prices for energy, shelter, food and vehicles fuelled the supercharged reading in October and indicated inflation is broadening out beyond categories associated with reopening.

Stock futures dropped after the report, while the yield on the 10-year Treasury rose and the dollar strengthened.

Against a backdrop of solid demand, businesses have been steadily raising prices for consumer goods and services at the same time supply chain bottlenecks and a shortage of qualified workers drive up costs.

The pickup suggests higher inflation will be longer-lasting than previously thought, putting pressure on Federal Reserve officials to end near-zero interest rates sooner than expected and potentially to quicken the pace of the bond-buying taper announced last week.

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The data also threaten to exacerbate political challenges for President Joe Biden and Democrats as they seek to pass a nearly US$2 trillion tax-and-spending package and defend razor-thin congressional majorities in next year's midterm elections.

A report on Tuesday showed prices paid to US producers also accelerated last month, largely due to higher goods costs, and adding to concerns about persistent price pressures across the globe. In China, inflation at the factory level last month increased by the most in 26 years, while consumer prices in Brazil sped up by more than forecast.

Excluding the volatile food and energy components, so-called core inflation rose 0.6 per cent from the prior month and 4.2 per cent from a year earlier. The annual increase was the largest since 1991.

Shelter costs - which are considered to be a more structural component of the CPI and make up about a third of the overall index - rose 0.5 per cent in October, the most in four months as higher rents and home prices feed into the data. The cost of hotel stays increased.

Prices for new cars rose 1.4 per cent last month as a global shortage of semiconductors continues to limit inventories and drive up costs. Used-vehicle prices jumped 2.5 per cent.

BLOOMBERG