Break out the shoulder pads and leg warmers because Americans are in the grips of a 1980s-style inflation flashback.
Consumer prices in the United States rocketed 6.8 percent in November from the same period a year ago, the Bureau of Labor Statistics said on Friday. The last time the nation saw an annualised inflation surge like that was back in 1982, when Olivia Newton John’s pop hit Physical topped the billboard charts.
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On a monthly basis, the Consumer Price Index rose 0.8 percent in November from October.
While the headline annual inflation number was largely in line with expectations, the data was collected before the Omicron variant of the coronavirus was declared a “variant of concern”, fuelling fears that more business-sapping virus restriction could be on the horizon.
The big worry is whether this year’s blistering inflation stemming from supply chain snarls and shortages of raw materials and workers will collide with slowing economic growth – a toxic mix economists call “stagflation”.
While many analysts have slightly revised their economic growth forecasts down, the overall sentiment is that a stagflation scenario remains remote and the recovery will remain on track.
The increase in the all-items Consumer Price Index continues to be broad-based, with soaring prices for petrol, rent, food, new and used cars and trucks leading the charge higher.
This year’s price increases in essential goods like food and fuel are especially hard on low-income households because it eats up a larger share of their income.
Energy prices were 33.3 percent higher in November compared with the same period a year earlier, while food prices were 6.1 percent higher – the largest 12-month changes in at least 13 years.
But some analysts say we may have seen the worst of fuel price inflation.
“With energy prices falling sharply in recent weeks, last month probably marked the peak,” said Paul Ashworth, chief US economist at Capital Economics.
The so-called “core” CPI which strips out food and energy rose 4.9 percent in November compared with a year earlier and jumped 5 percent from the previous month.
Americans who rent their homes continue to shell out more to keep a roof over their heads. The shelter index, which reflects rental costs but tends to lag due to how the data is collected, jumped 3.8 percent last month from the same period a year ago.
The sharp rise in rents this year is concerning because shelter prices are going up as eviction moratoriums are expiring. Millions of Americans are facing the prospect of homelessness after having their credit ruined by an eviction which will only make it harder for them to find new accommodation in an already eye-watering rental market.
Though working Americans are enjoying a long-overdue pay increase, thanks to a near-record number of job openings, those wage bumps are not keeping pace with inflation.
In November, average hourly earnings increased 4.8 percent from a year earlier.
The Federal Reserve has been prioritising getting Americans back to work during the recovery over keeping a lid on price pressures because it has viewed this year’s inflation spike as a temporary consequence of pandemic disruptions.
But Fed chief Jerome Powell recently signalled a shift is under way in the Fed’s thinking.
He recently told US lawmakers it is probably time to “retire” the word “transitory” when describing inflation and said the Fed could accelerate its unwinding of bond purchases that have helped keep longer-term borrowing costs low. A faster tapering could prepare the ground for an inflation-cooling interest rate hike sooner than expected.
The Fed is scheduled to have its final two-day policy-setting meeting of the year next week.