U.S. Consumer Price Index rose 0.9% from September, exceeding all estimates. 

U.S. consumer prices rose in October at the fastest annual pace since 1990, cementing high inflation as a hallmark of the pandemic recovery and eroding spending power even as wages surge. The consumer price index increased 6.2% from October 2020, according to Labor Department data. The CPI rose 0.9% from September, the largest gain 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 and indicated inflation is broadening out beyond categories associated with reopening. Stocks opened lower, 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.

Fed Pressure

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 in the first week of November. 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 November 9 showed prices paid to U.S. producers also accelerated in October. This was 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% from September and 4.2% from October 2020. 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% 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% last month as a global shortage of semiconductors continues to limit inventories and drive up costs. Used-vehicle prices jumped 2.5%.

Americans are also facing higher costs for basic necessities:

  • Food up 5.3% from year ago, most since January 2009
  • Gasoline rose 6.1% from September, biggest gain since March
  • Electricity costs jumped 1.8%, largest monthly increase since 2014
  • Fuel oil advanced 12.3% from prior month, most since 2007

“Higher energy prices, intensification of supply-chain bottlenecks and higher rents all pushed up prices briskly in the consumer basket,” Bloomberg Economics’ Anna Wong and Andrew Husby said in a note. Looking ahead, “those factors and adverse base effects should keep the headline CPI from peaking until January.”

Wages have strengthened markedly in recent months — with some measures rising by the most on record — but higher consumer prices are eroding Americans’ buying power. Inflation-adjusted average hourly earnings fell 1.2% in October from a year earlier, separate data showed

The government reported that the economy added 531,000 jobs in October, with annual wage growth the largest in eight months. The labour force is down 3 million from its pre-pandemic level, making it harder to fill the 10.4 million job openings as of the of August.

“Businesses facing labour shortages are likely retaining rather than laying off workers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “Even so, for the labour market, supply remains a constraint that is a headwind for the recovery for now.”.

Source: Globe and Mail
Source: Financial Post

U.S. retail sales beat expectations in October as holiday shopping started early

U.S. retail sales surged in October, likely as Americans started their holiday shopping early to avoid empty shelves amid shortages of some goods because of the ongoing pandemic, giving the economy a lift at the start of the fourth quarter. The solid report from the Commerce Department suggested high inflation was not yet dampening spending, and added to strong employment growth in October and an acceleration in services sector activity in painting an upbeat picture of the economy after it grew at its slowest pace in more than a year in the third quarter.

Retail sales jumped 1.7% in October after increasing 0.8% in September. Sales have now risen for three straight months. Economists polled by Reuters had forecast retail sales advancing 1.4%. Sales soared 16.3% year-on-year in October.

The broad increase in sales was led by motor vehicles, with receipts at auto dealerships advancing 1.8% after gaining 1.2% in September. The rise reflects an increase in unit sales as well as higher prices. Unit motor vehicle sales rose in October for the first time in six months. The tight supply of automobiles because of a global semiconductor shortage has driven up motor vehicle prices.

Broad gains

Retail sales also received a boost from higher gasoline prices, with receipts at service stations increasing 3.9%. Consumer prices soared 0.9% in October. Shortages probably led consumers to anticipate even higher prices and encouraged them to shop early. Online retail sales rebounded 4.0%.

Receipts at building material stores advanced 2.8% and furniture outlets sales rose 0.4%. Sales at electronics and appliance stores rebounded 3.8%. But sales at clothing stores fell 0.7% Sales at restaurants and bars were unchanged despite an ebb in COVID-19 infections, driven by the Delta variant. 

Excluding automobiles, gasoline, building materials and food services, retail sales shot up 1.6% in October after increasing 0.5% in September. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Even when adjusted for inflation, retail sales rose solidly in October, leaving the pace of growth in consumer spending above the meagre 1.6% annualized rate logged in the third quarter. The fading headwind from a surge in coronavirus infections over the summer is reviving economic activity. The economy grew at a 2.0% rate in the second quarter.

Hiring has been accompanied by an acceleration in wages as companies scramble to fill 10.4 million open jobs as of the end of September. But high inflation is wiping out those gains for some workers, which helped to sink consumer sentiment to a 10-year low in early November.

Still, economists do not believe the tumble in sentiment reported by the University of Michigan will undermine consumer spending, noting that other sentiment measures were above early-pandemic lows. Americans amassed at least $2 trillion in excess savings during the pandemic.

Source: Globe and Mail