Inflation Measure Soars to 30-Year High

Outside the Federal Reserve building in Washington, D.C. (Larry Downing/Reuters)

The Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index, which excludes food and energy costs, soared to a 30-year high in August.

The measure increased 0.3 percent for the month and was up 3.6 percent from last year in its steepest climb since May 1991, a trend suggesting that the pandemic’s inflationary pressures, catalyzed by massive government spending, supply chain bottlenecks and surging demand, are not correcting as quickly as some economists anticipated.

With the more volatile staple categories of food and energy factored back in, PCE prices increased 0.4 percent for the month and 4.3 percent year over year, the highest hike since January 1991, the Bureau of Economic Analysis reported Friday.

Personal income increased 0.2 percent for the month, while spending increased by 0.8 percent.

The ISM Manufacturing index survey for September also indicated that prices are rising, with 81.2 percent of respondents reporting increases versus 79.4 percent in August.

“Supply chain concerns are growing beyond electronics and chips into most other commodities. Lead times are extending, shipping lanes are slowing, and we will not see an end to this in 2021,” one respondent said in reference to backlogs and delays still plaguing his sector in electrical equipment, appliances and components, according to CNBC.

Much of the price index data from the last several months has validated the argument that inflation may not be a transitory phenomenon this time around. However, some economists and financial analysts cited by the White House to justify their $3.5 trillion spending bill still believe inflation will subside as soon as market disequilibriums balance.

Until recently, Federal Reserve leaders projected that inflation would temper and approach pre-pandemic levels of 2 percent or less by the close of 2021, but continued supply and labor shortages have changed that outlook. Fed Chairman Jerome Powell commented earlier this week that he finds the unrelenting inflation “frustrating.” He said he can foresee the possibility in which the shortages, and therefore inflation pressures, persist until next summer.

The Fed’s inflation target has long been a 2 percent average over the long run. To compensate for past quarters of inflation target undershooting, the Fed has tolerated inflation running above 2 percent for a number of consecutive quarters. In the event of spiraling inflation, a monetary instrument the Fed has at its disposal to slow it down is to hike interest rates, but not without the risk of triggering new recessionary effects.

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