Surging gasoline, food prices fan US inflation

U.S. consumer prices accelerated in October as Americans paid more for gasoline and food, leading to the biggest annual gain in 31 years, more signs that inflation could stay uncomfortably high well into 2022 amid snarled global supply chains.

Inflation pressures are also brewing in the labor market, where an acute shortage of workers is driving wages higher. The number of Americans filing claims for unemployment benefits fell to a 20-month low last week, other data showed on Wednesday.

But high inflation is eroding the wage gains, adding to political risk for President Joe Biden, whose approval rating has been falling as Americans grow more anxious about the economy. Broadening inflationary pressures could also complicate the Federal Reserve's communication. The Fed last week restated that high inflation is "expected to be transitory."

Both the White House and the Fed have maintained that prices will fall once supply bottlenecks start easing.

"Risks are clearly shifting toward U.S. inflation remaining elevated longer than previously thought, but that doesn't mean that it's permanent," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "The Fed could face a situation where higher consumer prices begin to weigh on consumer spending, reducing GDP growth."

The consumer price index jumped 0.9% last month after climbing 0.4% in September, the Labor Department said. The largest gain in four months hoisted the annual increase in the CPI to 6.2%. That was the biggest year-on-year rise since November 1990 and followed a 5.4% advance in September.

Economists polled by Reuters had forecast the CPI shooting up 0.6%. The broad-based increase in prices last month was led by gasoline prices, which surged 6.1% after rising 1.2% in September. Brent crude oil has gained over 60% this year as a recovering global economy is heating up demand.

Food prices advanced 0.9%, mostly driven by meat, eggs, fish, vegetables, cereals and bakery products. It also cost more to eat away from home. But prices for alcoholic beverages fell.

The government reported on Tuesday that producer prices increased strongly in October, reversing a slowing trend in the monthly PPI that had become entrenched since spring.

Inflation is heating up again as the economic drag from the summer wave of COVID-19 infections, driven by the Delta variant, fades and supply bottlenecks persist. Trillions of dollars in pandemic relief from governments across the globe fueled demand for goods, leaving supply chains overstretched.

The nearly two-year long pandemic has upended labor markets, causing a global shortage of workers needed to produce raw materials and move goods from factories to consumers.

Biden in a statement blamed the inflation surge on energy prices and said he had directed the White House National Economic Council "to pursue means to try to further reduce these costs, and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector."

Stocks on Wall Street fell. The dollar gained versus a basket of currencies. U.S. Treasury yields rose. (Reuters)