Inflation increased at its highest speed in the past forty years in the past month. The Labor Department reported this in its Consumer Price Index for November. The Consumer Price Index shows that inflation is putting pressure on the economy's recovery and increasing the stakes for the Federal Reserve. The consumer price index measures the cost of a wide-ranging basket of services and goods. It increased by 0.8% for the month. It is holding steady at a speed of 6.8% year-on-year and the swiftest rate on record since June of nearly forty years ago. The core consumer price index was up 0.5% for November and 4.9% from twelve months ago, excluding energy and food prices. This itself was the biggest pickup in the past thirty years.

The Dow Jones estimate was for an annual increase of 6.7% for the headline consumer price index and 4.9% for core. The cost increases came from familiar factors. The energy prices have increased by 33.3% since November of the previous year. This includes an increase of 3.5% in November. The gasoline sector alone is up by 58.1%. The food prices have increased 6.1% over the year. The used truck and car prices were a major contributor to the burst of inflation. They have increased by 31.4%. This was after a growth of 2.5% in the previous month. The Labor Department said the growth for energy and food components were the swiftest twelve-month increases in more than twelve years. Shelter costs comprise about one-third of the consumer price index. They grew by 3.8% on the year. This was the biggest increase in the past fifteen years as the housing crisis increased.

The markets reacted positively to the consumer price index report. The stock indexes on Wall Street increased. The government bond yields moved lower. Some experts thought the consumer price index report could show more than 7% inflation for the headline number. Fed officials have said that the increase in inflation can be attributed to a number of factors associated with the coronavirus pandemic. Robust consumer demand for goods and bottlenecks in the supply chain have been the main factors. But the price growth has been more persistent and stronger than the experts had thought. The Reserve bank officials have said that they will begin slowing down the assistance to calm down the inflation.

The investors expect the Federal Reserve to double the tapering of its asset buyback to $30 billion per month. This is likely to start next month. This would enable the Federal Reserve to start raising the interest rates by next spring. Charles Schwab, managing director of derivative sand trading Randy Frederick, said, "There's no question no matter how you look at it, even if you take out the extremes caused by the pandemic, it's still very high inflation. This is still supply chain disruption, semiconductor-related inflation." Bank of America chief US economist Michelle Mayer said, "We are in the midst of the third wave of pain, and we're not talking about COVID. Last month, one of the big surprises in the October CPI report was a 2.5% pop in used car prices, which contributed 10bp [basis points] to the 0.6% mom pop in the broader core CPI. Unfortunately, this may only be the beginning." 

The Consumer Price Index is Showing Inflationary Pressures

The gross pay has grown 4.8% over the past year. The real average hourly earnings accounting for the inflation decreased by another 0.4% for November and are down 1.9% for one year. This was said by the Labor Department in another release. Most pandemic-era inflation has come from the increasing demand for automobiles and other long-lasting goods. But the services inflation has also been growing. Excluding energy, the services cost increased by 0.4% in the previous month and are up 3.4% for one year. It was the swiftest annual speed since April of nearly fifteen years ago. The apparel costs were also much higher for the month. It increased by 1.3% for the month and nearly 5% for the entire year. This is just ahead of the shopping season during the holidays. 

Some experts think that inflation is nearing its peak. This is particularly with the energy prices decreasing in recent weeks. The West Texas Intermediate oil is up by more than 50% this year. The price has decreased by about 14% from the most recent peak in November. During the latest consumer price index release, the investors were focused on the updates on inflation and the omicron variant. There are concerns around both factors because they have increased the volatility across markets in the previous weeks. Both are intertwined with each other. Several people fear that an additional pandemic wave could spur another slowdown in spending and consumer mobility, impacting economic activity and corporate profits.

The Impact of Omicron is Yet to Be Seen

The vaccine-makers and other researchers have not yet determined the extent of the severity of illness and transmissibility of the Omicron variant. It is unknown whether it is partially resistant to the current vaccines. Despite the fears related to this wave of the virus, monetary policymakers have said that they will pull back on the monetary policy stimulus that had given support to the economy for more than eighteen months during the coronavirus pandemic. That has come because the inflationary trends have proven more challenging than previously expected. The stricter monetary policies can help to ease the elevated prices. The consumer price index released by the Labor Department helped investors get an updated look at the condition of inflation in the nation.

Though the Federal Reserve usually has the core personal consumption expenditures index as the preferred measure of inflation, the consumer price index has served as a critical data point that underscores the extent of price growth impacting Main Street buyers. The November consumer price index has come in yet again. The consensus of experts was that the consumer price index would increase by 0.7% this time month-on-month. This is when compared to 0.9% of October. This would be the seventeen-consecutive month of growth in the consumer price index. On a year-on-year basis, the consumer price index will accelerate to a mark of 6.7%. This is when compared to the annual rise of 6.2% in October. This would be the fastest growth in the past forty years. Excluding the more volatile energy and food costs, the consumer price index will have risen by 4.9% over the past twelve months.

This also speeds up from 4.6% in October and shows the fastest growth in the past thirty years. The growth in the consumer price index has been broad-based in recent times. The supply chain constraints and the labor shortages have hit various industries and led many firms to pass on the extra prices to their end-users. Michelle Mayer said, "Outside of autos, we look for price gains across goods categories such as household furnishings, apparel, and recreation commodities. Supply chains remain constrained by bottlenecks which convinced many retailers to kick off holiday sales even earlier this year in October. Considering the seasonals, October prices were likely biased down, but November prices should be biased up. Retailers also may have offered fewer discounts compared to previous years given tighter inventories."

Conclusion

The recent increases in commodity and energy prices have also contributed greatly to the headline consumer price index. The fuel oil prices have grown by 12.3% month-on-month in the consumer price index of October. The natural gas sector has increased by 6.6% in the highest monthly increase in the past eight years. Used truck and car prices eased in August and September after increasing earlier during the reopening amidst an increase in the mobility sector. It also reversed its course to increase in October.