Prices in the US rise 6.2 percent in October – highest value in 30 years

The Fed’s view is controversial among economists. “Again, inflation is significantly higher than forecast,” said Allianz’s chief economic advisor, Mohamed El-Erian, on the new figures on Twitter. “Downplaying inflation as ‘temporary’ becomes a real economic and sociopolitical problem.”

According to Commerzbank economist Christoph Balz, there is now increasing pressure on the Fed to react to these developments. Just last week it announced that it would gradually phase out its massive bond purchases. But also the key interest rate of close to zero percent fits “less and less with the general economic data” from Balz’s point of view.

He sees the high increases in rents and imputed rents as a warning sign. These make up about a third of the shopping basket and change rather slowly. “There were noticeably high increases in September, which were repeated in October. So September was not an outlier, ”writes Balz.

The average rents for the main residence, for example, rose by 2.7 percent compared to the previous year. Even if the production bottlenecks are overcome in the course of next year and prices for some goods that are currently particularly scarce fall again, Balz assumes that the price pressure is likely to remain higher than before the pandemic.

The main price driver in October was energy, which was 30 percent more expensive than in the previous year. It is noticeable here that the oil price had slumped last year as a result of the pandemic. Compared to the very low values ​​of the previous year, it is now correspondingly higher.

Food prices rose 5.3 percent. If one takes into account the particularly volatile prices for energy and food, the price increase was 4.6 percent.

Recently, the inflation expectations derived from market prices have risen significantly in the USA, but also in Europe. One reason for this is the situation on the US labor market. Economists believe it is possible that full employment could be achieved there as early as next year.

Around 530,000 new jobs were created in October – again significantly more than before. Many Americans who retired from the job market during the pandemic have not yet returned. As a result, it is becoming more and more difficult for companies to fill positions, which is already being reflected in more rapidly rising wages. This increases the risk of a so-called wage-price spiral. What is meant is the phenomenon that inflation and wages can mutually reinforce each other if the parties to the collective bargaining agreement expect higher price increases and therefore agree on higher wages.

Investors are therefore already speculating on an interest rate hike in the middle of next year. Most Fed officials, on the other hand, have tried to dampen these expectations. A prerequisite for an interest rate hike is that the Fed first ends its securities purchases, which currently amount to 120 billion dollars per month. Last Wednesday, Fed Chairman Jerome Powell announced that these should be gradually reduced from mid-November.

Initially, the volume of bond purchases will be reduced by ten billion and that of mortgage paper by five billion dollars. The operation is to be repeated to the same extent in December. This gradual reduction process, known in technical jargon as tapering, is expected to be completed by the next year. If the Fed maintains its pace, that would be the case in June 2022.

More: The US Federal Reserve is already curbing its bond purchases this month.