Inflation across a wide range of essential goods rose to its highest point in over 30 years as it jumped by 6.2% compared to last year in October.
According to the Labor Department on Wednesday, the CPI rose 0.9% against the estimated 0.6% on a monthly basis.
The CPI consists of products ranging from health care, groceries, and rents to gasoline.
Excluding volatile prices of food and energy, the CPI jumped by 0.6% against the estimate of 0.4%. Annual core inflation stood at a 4.6% pace, compared to the expected 4% expectation that is the highest since August 1991.
Fuel oil prices increased 12.3% for the month, taking the total increase of the year to 59.1%. Overall energy prices increased by 4.8% in October and have increased by 30% during the 12-month period.
A big contributor is the prices of used vehicles, which rose by 2.5% for the month and 26.4% for the year. New vehicle prices soared by 1.4% and 9.8%, for the month and the year respectively.
Food prices also contributed significantly following an increase of 0.9% and 5.3% respectively. In terms of food category meat, fish, poultry, and eggs collectively rose by 1.7% for the month and 11.9% year over year.
In another report by the Labor Department, the data shows that real wages after inflation dropped by 0.5% between September to October as a result of a 0.4% increase in average hourly earnings which was offset by the CPI surge.
Shelter costs contribute to one-third of the CPI computation and rose by 0.5% for the month. Shelter costs have jumped up by 3.5% on a year-over-year basis, triggering worries that inflation could be more persistent than expected by the policymakers. The annual pace is the fastest since September 2019.
The chief strategist at Principal Global Investors Seema Shah said, “Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures”.
The data has come when policymakers including Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen maintain that the current price pressures are temporary and related to Covid pandemic-specific issues. While they have conceded that inflation has been more persistent than they expected, they see conditions returning to normal over the next year or so.
Stock market futures fell following the report and bond yields rose.
Rising inflation could lead to the Fed tightening its policy faster than it has signaled. The central bank has hinted that it will start lowering the number of bonds it purchases every month in the next few weeks. However, officials have hinted that interest rate hikes are still off in the near future.
As per CME’s FedWatch tool, traders on Wednesday were pricing in two rate hikes in 2022 and around a 44% probability of another hike. The Fed has hinted that it is very unlikely that there will be only one rate hike though St. Louis Fed President James Bullard told CNBC overnight that he expects two.
Other market-based measures have also turned increasingly hawkish, with the 5-year breakeven rate touching a record high of over 3%.
Another report on Wednesday showed that early claims for jobless benefits edged lower to 267,000, a fresh pandemic-era low following a decline of 4,000 from the last week. That was lower than the Dow Jones estimate for 269,000.
Continuing claims, boosted by 59,000 to 2.16 million, while the total receiving benefits under all programs dropped by 107,095 to 2.56 million. The latter figure was at 21.7 million last year.