Andrew KnollPrice pressures for 2021 reached their highest level since 1990, as the US Department of Commerce revealed that its favored method for measuring inflation rose 5% in the 12 months ending in October and 0.6% in October alone, up from 0.4% in September.
The Personal Consumption Expenditures price index rose again in October, due largely to a sharp increase in energy prices (30.2% annually), a notable bump in food cost (4.8%) and also as a result of expedited post-pandemic recovery. Personal income, employee compensation and interest/dividend income were all up slightly, and initial jobless claims hit a 52-year low according to the US Labor Department.
“The current reading of the Fed's preferred measure of inflation (the core PCE price deflator) remains well above target. According to October's Survey of Consumer Expectations, median inflation expectations reached a new high of 5.7% at the one-year horizon,” wrote economist Maria Solovieva of TD Economics. “The Fed is likely to take action to prevent higher inflation from becoming entrenched, raising the federal funds rate at least twice in 2022.”
A backdrop of uncertainty
While US President Joe Biden’s administration extolled the rosier aspects of the situation such as a robust labour market, Biden was well aware that broader measures of public opinion were not so favorable. Biden’s approval rating has been in a freefall in the second half of 2021, and the University of Michigan’s monthly analysis of consumer confidence said it had reached its lowest point in 10 years.
The Michigan study indicated that one in four American consumers had reported a negative impact of inflation on their standard of living, and that many expected decreases in their real income in the coming year.
Another TD Economist, Leslie Preston, noted that Q3 continued the trends of slowed growth from Q2, as the stimulus-driven surges subsided and supply chain disruptions wreaked havoc on various industries, such as the automobile sector.
“We have more work to do before our economy is back to normal, including addressing price increases that hurt Americans’ pocketbooks and undermine gains in wages and disposable income,” Biden said in a statement on Wednesday.
Combating energy costs
One such potential redress was already set in motion as last week the US, Britain, China, India, Japan and South Korea all vowed to tap into their oil reserves. The US alone has some 620 million barrels of crude oil in its stash, 50 million of which will be mobilised in this effort. While China did not specify the quantity it would contribute, the other four nations will appropriate between 1.5 million and 5 million barrels from their caches.
Overall impact on oil prices has been mixed, and they actually rose upon the announcements of reserve mobilisation. That’s just one paradox facing Biden and other heads of state, as they seek to increase production while touting efforts to decrease fossil fuel dependency and fire mandates at the moving target of soaring energy costs.
Micromanaging oil prices can be exceedingly difficult for world leaders, even of the most powerful nations. Such efforts from US presidents were undertaken by the Bush Sr., Bush Jr. and Obama administrations, with the first Iraq War, Hurricane Katrina and unrest in Libya, respectively, spurring those maneuvers.
Perhaps the closest corollary to the present situation was President Clinton’s freeing up of some 30 million barrels from the strategic reserve in 2000, another populist move in the face of escalating oil prices and a looming winter. Having reached a 10-year high, prices declined initially but were back within cents of their pre-mobilisation price two weeks later.
