Higher inflation suffocating U.S. consumers as food prices and rents accelerate

WASHINGTON, Oct.13 (Reuters) – Consumer prices in the United States rose sharply in September as Americans paid more for food, rent and a range of other goods, pressuring the Biden administration to as a matter of urgency, it resolves strained supply chains, which hamper economic growth.

While prices are expected to rise further in the coming months following a recent surge in energy product costs, Wednesday’s Labor Department report could test Federal Reserve Chairman Jerome Powell’s repeated assertion that a high inflation is transient. Powell and the White House blamed supply chain bottlenecks for high inflation.

Supply chains have been erased by robust demand as economies emerge from the COVID-19 pandemic, thanks to more than $ 10,000 billion in global economic stimulus, about half of which is in the United States. The coronavirus pandemic has caused a global shortage of workers needed to produce raw materials and move goods from factories to consumers.

President Joe Biden announced on Wednesday that the Port of Los Angeles would begin operating 24 hours a day, following the example of the Port of Long Beach, to reduce congestion. Retailers like Walmart Inc (WMT.N) as well as shipping companies FedEx Corp (FDX.N) and UPS (UPS.N) have also agreed to move the goods 24 hours a day, seven days a week.

“Inflation is no longer ‘transient’,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles. “Supply chain bottlenecks are getting worse. The stalemate is not expected to ease anytime soon despite the latest White House intervention.”

The consumer price index rose 0.4% last month after rising 0.3% in August. Food prices jumped 0.9% after rising 0.4% the month before. The biggest increase in food prices since April 2020 has been triggered by a surge in the cost of meat.

The rent equivalent of the owners’ primary residence, which is what a landlord would receive by renting a house, increased 0.4%. This was the largest gain in five years and followed a 0.3% increase in August. Rent for a principal residence jumped 0.5%, the largest increase since May 2001.

Rents are rising as demand for housing in cities rebounds after a pandemic-induced exodus to suburbs and other low-density places. Economists expect rents, which account for nearly a third of the CPI, will be a major source of inflation in the months to come.

“If house prices continue to soar, it could mean higher inflation is more entrenched than originally thought,” said Will Compernolle, senior economist at FHN Financial in New York City.

Food and rents accounted for more than half of the increase in the CPI. Economists polled by Reuters had forecast the headline CPI to rise 0.3%.

In the 12 months ending in September, the CPI rose 5.4% after rising 5.3% year-on-year in August.

Although gasoline prices rose moderately from August, prices at the pump accelerated after the price of Brent crude rose above $ 80 per barrel. The prices of natural gas have also increased.

Major US stock indices closed higher. The dollar (.DXY) fell against a basket of currencies. Yields on two-year Treasury bills, which are sensitive to changes in interest rates, have increased.

MORE EXPENSIVE NEW CARS

Excluding the volatile components of food and energy, the CPI rose 0.2% after edging up 0.1% in August. In addition to rents, the core CPI was boosted by a 1.3% increase in the cost of new motor vehicles, which marked the fifth consecutive month of gains above 1%.

A global semiconductor shortage has forced automakers to cut production. The average price of a new motor vehicle exceeded $ 45,000 for the first time in September, according to Kelley Blue Book, a vehicle valuation and automotive research company in California.

There were also increases in furniture and household maintenance prices, with furniture and bedding posting the largest increase since March 1988. Consumers also paid more for auto insurance.

Although the prices of airline tickets and used cars and trucks fell, economists expected a rebound, noting that air travel resumed as infections caused by the Delta variant of the coronavirus declined. Auction data indicated higher prices for used motor vehicles.

Core CPI rose 4.0% year-on-year last month, matching August’s gain.

Accelerating wage growth is also putting upward pressure on inflation. The government announced last week that the average hourly wage rose the most in seven months on an annual basis in September due to labor shortages.

With the number of people voluntarily leaving their jobs at an all time high in August and at least 10.4 million vacant positions, wage inflation is expected to rise further.

The minutes of the Fed’s September 21-22 policy meeting, which were released on Wednesday, showed that some U.S. central bank officials “have expressed concerns that high inflation rates may be on the rise. pass through to households’ long-term inflation expectations “.

Fed officials have signaled that they could start cutting back on the central bank’s massive bond-buying program in mid-November, according to the minutes.

High inflation, if it persists, could force the Fed to raise interest rates.

“More persistent and persistent factors are becoming more prevalent, to which the Fed is more likely to respond,” said Michelle Meyer, chief US economist at Bank of America Securities in New York.

The Fed’s preferred measure of inflation for its flexible 2% target, the basic personal consumption expenditure price index, rose 3.6% in the 12 months through August, increasing by the same margin for a third consecutive month.

September data is expected later this month. The Fed last month raised its core PCE inflation projection for this year to 3.7% from 3.0% in June.

Rising inflation, which is eroding consumers’ purchasing power, and supply constraints have led economists to anticipate economic growth slowing to below an annualized rate of 3% in the third quarter. The economy grew at a pace of 6.7% during the April-June quarter.

Reporting by Lucia Mutikani Editing by Chizu Nomiyama and Paul Simao

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