The Consumer Price Index, which measures average prices paid by the typical consumer, surged 6.2% in October, the highest since 1990. From groceries, gasoline and shelter, prices on everyday products have skyrocketed and wage increases haven’t made up for these changes.
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Despite these fears and ongoing supply chain disruptions, the Federal Reserve continues to stick with its original outlook, saying that U.S. inflation is mostly transitory. Here are a few reasons why:
1. Strong Retail Sales
Despite inflation pushing prices higher, retail sales indicate that the U.S. is still on the path to recovery. The Commerce Department reported that retail sales rose 1.7% in October for all items excluding autos — their fastest pace since the 1990s, CNBC reported. Overall, sales are up 16.3% year-over-year.
2. Better Industrial Output
Businesses started to slowly increase production in response to recovering demand. “This isn’t unusual coming out of a recession,” wrote Mark Zandi, chief economist of Moody’s Analytics. “Businesses are unsure whether the stronger demand has staying power and are cautious about ramping up production.”
However, Carl Weinberg, chief economist at High Frequency Economics, told CNBC that with industrial output and GDP back to pre-pandemic levels, the U.S. economy has largely recovered.
“We have a problem related to specific sectors of the economy, not the economy overall. I was surprised to read those industrial production and manufacturing numbers, but they are what they are, and we are doing it now with 5 million fewer people working than before the pandemic, so this tells us that productivity ought to be up by maybe 3% or more compared to then,” Weinberg said.
3. Improving Labor Market
According to November’s job report, nonfarm payrolls increased by 531,000 in October, driving the unemployment rate down to 4.6%, CNBC noted.
As the Delta wave spread across the nation, workers weren’t able to fill a near-record number of unfilled open positions. Employers promised signing bonuses and higher pay to attract and retain workers. “But as Delta fades and workers get healthy and return to work, the acute labor shortages and outsize pay increases will end, which means higher prices will too,” Zandi added.
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