Turkeys to tyres turn dearer in echoes of the Great Inflation, in 7 charts
From Thanksgiving turkeys to tyres, from furniture to baby food, US consumer prices are rising at speeds not seen in a long time, rekindling memories of the Great Inflation of the 1970s.
While the Federal Reserve has reiterated more than once that the inflation spike is likely transitory and tied to pandemic-affected items such as used cars and energy commodities, a granular analysis of consumer-price data seems to suggest otherwise.
Below are seven charts that illustrate how price pressures are now spreading across the whole US consumer basket, giving credence to the view that inflation is unlikely to go away anytime soon.
1) US inflation hit a 30-year high in October
The annual US Consumer Price Index (CPI) inflation jumped to 6.2% in October, the highest level in more than 30 years, exceeding the consensus analyst estimate for 5.8%. The so-called core inflation rate, which excludes food and energy costs, soared to the its highest level since 1991 of 4.6%.
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2) Median CPI rate is highest since 1980s
The so-called median CPI rate, which excludes all price changes except for the one in the very center of the distribution of the basket, climbed to 7.1% last month, the highest since the 1980s.
According to studies conducted by the Cleveland Fed, the median CPI is a more accurate indicator of inflation tendency than either the headline rate or the core measure. And that’s because it measures inflation right at the heart of the whole basket and, as a result, is less likely to be distorted by excessive changes in the prices of some items.
3) Furnishing costs see biggest rise in over 50 years
You should probably raise the budget if you are planning to furnish your home this winter.
The annual pace of increases in furniture and bedding costs in the US has surged to levels not seen in over 50 years, reaching 12% in October. The last time furniture and bedding inflation hit double digits was in the mid-1970s.
4) The Thanksgiving turkey will cost 8% more this year
Looks like you’ll need a few extra dollars to put a turkey on the table at this year’s Thanksgiving.
US poultry prices were up 7.5% in October from a year earlier. The cost had already risen substantially in the first quarter of 2020 when consumers were panic buying food in supermarkets amid lockdowns. Previously, the price of poultry had increased significantly from 2002 to 2004 and from mid-2006 to the end of 2007.
5) Feeding your baby now costs a few dollars more
If you are a new parent, you are already turning a blind eye when buying baby food because prices have seen an accelerated increase of late.
In October, US baby-food inflation rate rose to 8% year-on-year in the United States. The last time the measure reached this level was in July 2008.
6) Replacing your car tyres will now cost about 10% more
You may have been planning a road trip across the US or it might be already time to replace your car’s worn tyres before the winter.
Be prepared to get a hefty bill from your tyre dealer because the price increases for the item haven’t been this steep since 1993. US tyre inflation hit a year-on-year rate of 9.2% in October. Prices had steadily declined between 2013 and 2021, with the exception of 2019.
7) Check your credit-card balance before dining out
If you were thinking of going back to dining out after long months of lockdowns, check your credit card balance again because restaurant prices have most recently risen at the fastest pace in more than 40 years. The cost of eating out increased 5.3% in October from a year earlier.
What inflation risks mean for markets
Consumer-price pressures worldwide have risen steadily since the start of this year, looking less and less transitory with each passing month. And at some point, that may act as a wake-up call for central bankers who have reiterated that recent levels of inflation were unlikely to persist for long.
Any central-bank action to rein in inflation could mean a faster move to normalise monetary policy from the current ultra-accommodative stance to a more balanced one, potentially leading to higher interest rates in the coming years. The Federal Reserve (Fed) has already announced a reduction of its net asset purchases starting this month, but is yet to signal the prospect of higher rates.
The Fed's latest “dot plot” – which shows policy makers' views on the appropriate level for the fed funds rate at the end of each calendar year – continues to suggest a median preference for no rate increase in 2022. A new dot plot will be released at the US central bank's December meeting.
Meanwhile, investors are moving a step forward and have started pricing in odds of higher US borrowing costs, discounting a cumulative 65% probability of a first rate increase by June 2022. The prospect of higher rates could sour investor sentiment towards riskier assets, while enhancing the dollar’s attractiveness against low-yielding peers.
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