At 6.2%, rate underscores pressures on country's rebounding economy

Consumers such as these shoppers in Washington DC on Wednesday are seeing prices rise. (SHEN TING / XINHUA)

US consumers are facing the highest inflation since 1990, with the key rate climbing to 6.2 percent in October, driven by surges in food, gas and housing costs, government data showed on Wednesday. Supply shortages and strong demand also played a role.

The year-over-year increase in the consumer price index exceeded the 5.4 percent rise in September, the Bureau of Labor Statistics reported. From September to October, prices jumped 0.9 percent, the highest month-over-month increase since June.

The surge in the CPI wasn’t surprising given the massive fiscal spending and monetary expansion since 2020. ... Next year is an election year, and the Fed wouldn’t want the economy to slow before November of 2022, which would likely happen if interest rates were raised in the early part of next year

Robert Dekle, a professor of eco-nomics at the University of Southern California in Los Angeles

Excluding the volatile food and energy categories, the so-called core prices rose 0.6 percent from September to October in the United States. Core prices are now up 4.6 percent compared with a year ago.

In response to the inflationary pressures, US President Joe Biden said in a statement that "reversing this trend is a top priority for me".

The CPI report showed higher prices in October from the previous month for basic necessities. The cost of food rose 5.3 percent; gasoline, 6.1 percent; and electricity, 1.8 percent. The price for fuel surged 12.3 percent. More moderate were the increases for restaurant meals, rental apartments and medical services, up 0.5 percent.

Though the US economy is experiencing a strong rebound from the COVID-19 pandemic and spending across the economy has returned to its pre-coronavirus trend, increasing inflation has taken the spotlight.

It is eating away at strong gains in wages and salaries and putting pressure on the Biden administration and the Federal Reserve to act.

Robert Dekle, a professor of economics at the University of Southern California in Los Angeles, told China Daily that the surge in the CPI wasn't surprising "given the massive fiscal spending and monetary expansion since 2020".

John Graham, a professor emeritus at the Merage School of Business at the University of California, Irvine, takes a similar view. "Given that US government spending is going up, the inflation is really inevitable," he said.

Dekle said he doubted that inflation will dip below 3.5 percent before the end of 2022, and that financial markets expect interest rates will rise twice toward the end of 2022.

"There is still a lot of uncertainty in the economy owing to COVID.Next year is an election year, and the Fed wouldn't want the economy to slow before November of 2022, which would likely happen if interest rates were raised in the early part of next year," he said.

Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics, told China Daily: "The big story is the drop in labor force participation, about 3 percent or 4 million workers, plus the incredible increase in household income delivered by about $4 trillion of spending in late 2020 and the first half of 2021."

More spending

More spending is on the way, on top of extreme monetary policy easing, like quantitative easing (QE) and negative real interest rates, so "it would be surprising if we did not have serious inflation", Hufbauer said.

Hufbauer also predicted that inflation will stay high－above 4 percent－for most of 2022.

"It will get back to 2 percent when the Fed stops QE and raises the policy rate above negative territory－probably not before 2023," he said.

Michelle Meyer, head of US economics at Bank of America, told The New York Times that the October data is striking for the "broadening of the inflationary pressures". She added: "It's obviously getting uncomfortable for the Fed."

The rising prices also are hurting Biden and his fellow Democrats. In a recent NBC News poll, 57 percent of respondents said they disapprove of the president's handling of the economy.

Republicans are calling the rise in prices "Bideninflation" and are saying Biden and Democrats are to blame because they gave checks to households and enacted other pandemic-related policies.

Liu Yinmeng in Los Angeles and Lia Zhu in San Francisco contributed to this story.

Contact the writers at aiheping@chinadailyusa.com