US consumer prices rose last month at a rate not seen in nearly 40 years, the government reported Friday, underscoring how inflation threatens the world’s largest economy and President Joe Biden’s public support.
The Labor Department’s consumer price index (CPI) jumped 6.8 percent compared to November of last year, its biggest gain since June 1982 as prices for gasoline, used cars, rent, food and other goods continued to climb.
While the report contained signs that the inflation wave may be reaching a crest, it nonetheless poses a political liability for the president, with the Republican opposition using it to argue against his economic policies.
Biden countered that the report did not encompass recent declines in prices of energy and used cars, two main drivers of the high inflation readings seen this year, and that supply chain issues which have driven prices higher are being resolved.
“Today’s numbers reflect the pressures that economies around the world are facing as we emerge from a global pandemic — prices are rising,” Biden said in a statement, adding that “price and cost increase are slowing, although not as quickly as we’d like.”
Should we really worry about global inflation?
Top Senate Republican Mitch McConnell put the blame on the White House, saying that the data “confirm what every American family already knows: Inflation is out of control on the Democrats’ watch.”
Gasoline prices rose 6.1 percent last month, while prices of used cars climbed 2.5 percent, according to the CPI report.
However, those were both the same increases as in October.
The month-on-month rate of consumer price inflation also decelerated slightly to 0.8 percent, but that was nonetheless higher than expected.
Biden made fighting inflation a top priority last month after the CPI in October saw its sharpest annual increase since 1990.
That surprised analysts and gave Republicans ammunition to use against his landmark Build Back Better plan, which would spend $1.8 trillion on improving social services and fighting climate change but faces a tough road in Congress, which his Democrats control by a narrow margin.
A variety of factors have caused the price increases, including shortages of components and workers, high demand for goods and rebounds in industries that were disrupted by the Covid-19 pandemic but are now recovering with the help of vaccines.
The degree to which Biden deserves blame for the inflation spike is the subject of debate.
Mickey Levy, chief economist covering the Americas and Asia at Berenberg Capital Markets, pointed to the supply bottlenecks, the Federal Reserve’s low interest rate policies and pandemic recovery legislation enacted under Biden and his Republican predecessor Donald Trump.
“The Biden administration fears the negative political fallout of the impact of higher inflation on households and is trying to defer the blame on special factors,” Levy said.
The White House has argued that its actions helped get the country back on its feet after last year’s economic collapse, citing steady declines in the unemployment rate and the number of people filing for unemployment assistance.
At the peak?
Some of the high inflation readings have stemmed from price increases for commodities like oil, which went negative last year at the nadir of the downturn but have risen this year as worldwide demand recovered.
That has pushed gas prices higher in the United States, but they have started to dial back in recent weeks.
Another sticky issue has been prices of automobiles, as a worldwide shortage of semiconductors created scarcity of new cars, and raised prices for used vehicles.
Michael Gapen, chief US economist at Barclays Investment Bank, noted that auto prices had started to show signs of decreasing, but then Hurricane Ida destroyed 200,000 cars in the United States in late August, creating a renewed run on supply.
However, he predicted price increases would reach their peak in the months to come, a view shared by other economists as supply chains unkink themselves and factories rebuild depleted inventories.
“Looking forward, we expect we are at the point, basically, where year-on-year inflation is peaking, and we do expect inflation to slow pretty dramatically over the course of 2022,” he said.
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