US consumer prices are expected to have increased at the fastest pace in nearly 40 years in November, threatening to pile more political pressure on the Biden administration as it seeks support for a massive spending plan.
According to a consensus forecast compiled by Bloomberg, the consumer price index (CPI) published by the Bureau of Labor Statistics at 8:30am Eastern time on Friday is expected to have risen by 6.8 per cent last month from a year ago, which would be the fastest annual pace since 1982 and a significant pick-up from the 6.2 per cent rate in October.
Prices between October and November are expected to have jumped 0.7 per cent, more moderate than the previous month-on-month increase.
Stripping out volatile items like food and energy, “core” CPI is expected to have risen 0.5 per cent from October. That is roughly in line with the previous period, but will push up the annual pace to 4.9 per cent. Last month, it registered 4.6 per cent.
Inflation has become a thorny political issue for the White House, weighing on president Joe Biden’s approval ratings as well as the electoral prospects for his Democratic party during next year’s midterm elections.
The Biden administration assumed a defensive stance ahead of Friday’s report, and the president issued a rare statement that sought to play down the relevancy of the incoming data.
“The information being released tomorrow on energy in November does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead, such as in the auto market,” Biden said on Thursday.
Gasoline prices have moderated in recent weeks, as have natural gas prices, though a senior administration official said this “relief” is not captured in the November report. Price pressures are set to abate further in 2022, the person added, noting that such a forecast aligns with most official and private-sector projections.
Brian Deese, director of the National Economic Council, reiterated that point on Thursday, while also highlighting the White House’s commitment to tackle inflation.
At risk for the White House is legislation to invest $1.75tn in America’s social safety net, which Biden is seeking to pass through Congress this month. Last month Biden signed into law another flagship $1.2tn bipartisan infrastructure bill.
Republicans and some moderate Democrats have argued that additional spending will add further fuel to rising prices, contributing to even higher inflation.
According to a recent poll of academic economists for the Financial Times — in partnership with the Initiative on Global Markets at the University of Chicago Booth School of Business — the planned expenditures are not expected to alter the inflation outlook substantially.
The majority of the 48 economists surveyed said the two bills would have “no material impact” on inflation, while roughly a third said it could lead to marginally higher price pressures over time.
Once concentrated to a few sectors most sensitive to pandemic-related reopenings and supply-chain disruptions like used cars and travel-related expenses, inflation has broadened out and now shows signs of becoming a persistent problem.
Jay Powell, chair of the Federal Reserve, has now jettisoned the central bank’s characterisation of inflation as “transitory”, which senior officials had repeatedly invoked to push back on criticism that they were not taking a tough enough stance against what they determined were temporary price pressures.
He acknowledged the risks of inflation becoming entrenched had risen, setting the stage for the US central bank to more quickly scale back its stimulus at its meeting next week. Just a month ago, the Fed announced a reduction in its asset purchase programme by $15bn a month, meaning it would no longer buy government bonds by the end of June.
Wall Street economists broadly expect the Fed to cease expanding the size of its balance sheet in March and have pencilled in the first interest rate increase in June, with nearly two more slated for later in the year.