US inflation hits three-decade high

US consumers are facing the highest inflation rate since 1990 as prices jumped 6.2 percent in October, the Bureau of Labor Statistics reported Wednesday, spurred by surging food, gas and housing costs as well as supply shortages and strong demand.

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

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

The surging consumer prices caused Wall Street to close in negative territory, and President Joe Biden to issue a statement saying that "reversing this trend is a top priority for me".

The Dow Jones Industrial Average fell 0.71percent, the S&P 500 lost 0.98 percent and the Nasdaq Composite declined 1.93 percent. The price of gold, which is seen as a hedge against inflation, hit a five-month high. Real yields on US Treasuries slid to record lows.

The CPI report showed higher prices in October from the previous month for basic necessities: food up 5.3 percent; gasoline rose 6.1 percent; electricity costs jumped 1.8 percent and fuel oil rose 12.3 percent. Prices for restaurant meals, rental apartments and medical services rose 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 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 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 California, Irvine, agreed, telling China Daily, "Given that US government spending is going up, the inflation is really inevitable."

Dekle said he doubted inflation will dip below 3.5 percent before the end of 2022, and that financial markets expect that 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 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 added.

Hufbauer also predicted that inflation will continue at a high pace at 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 "what's striking" about the October data is the "broadening of the inflationary pressures. It's obviously getting uncomfortable for the Fed," she said.

Some economists say the Fed could end near-zero interest rates sooner than expected and quicken the pace of the bond-buying taper announced last week. Fed Chair Jerome Powell had described inflation as "transitory" and said it would fade over time. As recently as Nov 3, Powell said at a news conference, "We don't think it's time yet to raise interest rates."

The rising prices also are hurting Biden and fellow Democrats. In a recent NBC News poll, 57 percent of Americans 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.

On Wednesday Biden said that good news in the economy — including lower weekly claims for unemployment, his economic agenda and the $1.2 trillion infrastructure bill recently passed by Congress — will help bring down prices, as will easing supply chain pressure.

"I really feel for all of the families who are out there purchasing goods and services," Mary Daly, president of the Federal Reserve Bank of San Francisco, said during a webcast Tuesday. She said the question for the Fed is whether those price increases will last.

Goldman Sachs economists in a research note Sunday said, "the inflation overshoot will likely get worse before it gets better".

A shortage of available workers is also affecting inflation as companies increase wages to attract workers and pass the costs of the higher pay on to consumers. In October, 53 percent of small businesses raised prices, according to the National Federation of Independent Business, a trade association.

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