Expert Opinion - Consumer Price Index for October 2021

Expert Opinion - Consumer Price Index for October 2021

By Yash

The Consumer Price Index showed that consumer prices have increased at the fastest speed in more than thirty years in the past month. This is because fuel cost has increased, supply chains have stayed under pressure, and the rents have grown. This is not great news for economic policymakers at the Fed Reserve and the White House. The Consumer Price Index indicated that overall costs had increased more than six percent over the past year. This is the fastest speed since 1990. Inflation has also started growing every month. The Consumer Price Index shows that the costs have increased in most segments in the past months, including car dealerships, restaurants, and deli counters. The speed is not a wanted development for the current administration. The federal government has repeatedly said that while cost growth is faster than typical, the speed slowed down from the fast summertime readings.


It is also a challenge on the policy front of the Federal Reserve. It is charged with the responsibility of maintaining stable costs and maximum employment. The inflation rates are far swifter than the two percent annual growth the Federal Reserve looks for on average over time. The Federal Reserve sets its ambition using a separate measure of inflation other than the Consumer Price Index. It is the personal consumption expenditures index (PCEI). But that also has picked up a lot this year. The Consumer Price Index report is faster than the PCEI, and assists in feeding in the favored gauge of the Federal Reserve, so they are closely examined by experts and investors on Wall Street.


President Joe Biden has acknowledged that the cost of living is rising. After the Consumer Price Index came out, he stated that reversing the trend was a major priority for the federal government. At the Port of Baltimore, he said, "Many people remain unsettled about the economy, and we all know why: They see higher prices. Everything from a gallon of gas to a loaf of bread costs more, and it's worrisome, even though wages are going up."


The Approval Ratings Have Gone Down


The president's approval rating has gone down as buyers feel the pinch of greater costs for housing, groceries, and gas. The increasing costs could also complicate the ability to push through a big spending bill that will carry much of the economic agenda of the Federal Government. Some lawmakers have said that the impact of more federal spending could be great on inflation. A portion of the dilemma is that inflation is not stabilizing. Many experts had predicted that it would be the end of this year. But it has increased to nearly one percent in the previous month from September. A report from the Labor Department showed this. This is swifter than September's growth of 0.9 percent and well above the expectations of the economists. The so-called core prices strip out products such as fuel and food. They also increased more quickly.


The Fed officials and the administration have said that the swift inflation will fade gradually. But they have had to revise how fast that will happen. The supply chains are badly snarled, and the demand for goods is not going up, leading to higher costs. The wages have started to increase in many sectors, and there have been labor shortages. There are also reasons to expect that some organizations might charge their buyers more to cover the increasing worker costs. The data from the Consumer Price Index has done nothing to minimize the heightening sense of unease. Michelle Meyer, the head of US economics at the Bank of America, said, "It is a big number. What is striking is the broadening of the inflationary pressures."


Many Things Have Contributed to Inflation


Many things have increased inflation to greater heights in the previous months. There have been shortages of new and used vehicles that have greatly increased the costs. The issues in the supply chain have made the furniture costlier. The shortages in labor are increasing several service-industry price tags, and rents have grown after a timid time in the previous year. In the consumer price index, the fuel and food costs have increased sharply also. Inflation is growing beyond pandemic-disrupted segments such as airline tickets and imported electronics to slow-moving segments such as rent can be a warning sign for policymakers in the Federal Reserve. This is because it increases the risk that cost pressures could be around for a while. This is truer as there are acute labor shortages. Participation in the job market does not show much sign of picking up. This has led to wage gains and made things uncomfortable for the Federal Reserve.


Officials do not want to overreact to a surge in inflation that problems in the supply chain have driven. They are worried that doing that will affect the economy, which is not required. If the problems continue, they will probably come under more pressure to bring forward their plans to pull back any economic support by eliminating their simulative bond-buying scheme and hiking the interest rates from the bottom more quickly. Experts believe that inflation has been an eye-opener but warned that the Federal Reserve was also paying attention to many jobs that were not present in the labor market. Experts say it is too soon to say that the officials would be required to speed up the process of tapering the monthly bond buyback beyond the speed that the Federal Reserve has announced in the previous week.


Buying is a Precondition to an Increase in Rates


The tapering of buying is a precondition to an increase in rates. Experts believe that it would be premature to start asking whether the Federal Reserve should quicken the taper. Markets also took note of the Consumer Price Index. The stocks slowly decreased throughout the day. A vital measure of the expectations for inflation in the bond market for the next five years increased to a new high of more than three percent after the issue of the report. This means that investors expect the inflation to flatline to about three percent a year for the coming five years. This is far more than in any period in the decade before the start of the pandemic. They are also betting the Federal Reserve will respond. The market pricing shows that investors have come to expect that there will be an increase in the rate by the Federal Reserve early next year.


Jerome H. Powell, the chairman of the Federal Reserve, said, "We do not think it is time yet to raise interest rates. There is still ground to cover to reach maximum employment." Seema Shah, an expert at Principal Global Investors, said, "I expect lots of eyeballs were bulging out of their sockets when they saw the number come in. Inflation is getting worse before it gets better."




For investors and policymakers alike, it is not easy to say when the cost jumps might stabilize. Many are intertwined with the restarting of businesses from local and state lockdowns meant to prevent the spreading of the coronavirus. The economy has never undergone such a widespread shutdown and restart before this. But officials have become concerned that the high inflation might stay. The buyers have set their expectations for price gains in the future.



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