Americans have found themselves on the edge of their seats while waiting for the latest CPI report. Unfortunately, the news was not good since consumer prices in the United States jumped more than 6.2% in October. It marks the biggest surge in inflation in more than 30 years. Now, the Biden administration will need to do something to rectify the ongoing price increases. What can the President and Fed do? Should you expect to continue paying higher prices at the pump and grocery store?
 

Consumer Price Index

First, consumers should take a look at the latest information from the consumer price index. The information released on November 10, confirmed that consumer prices had climbed by 6.2% from a year ago. Unfortunately, this is the biggest increase since December 1990. When not considering energy costs and food costs, core inflation increased 4.6%. Again, this was the quickest gain since August 1991. Although everything increased, the most notable changes were the prices of energy, vehicle, and shelter.

In addition to this, the ongoing inflation has eliminated any wage increases Americans received in October. Inflation was must worse than what experts expected for October. The Dow Jones estimate of 5.9% was topped. From the prior month, October’s CPI increased by 0.9% while experts predicted a 0.6% increase.

The Biggest Gains

American consumers are going to pay higher prices at the pump, grocery store, and dealer. The price increases aren’t going to slow anytime soon either. For the month, oil prices climbed as much as 12.3%. Over the past year, they have jumped by more than 59%. Energy prices rose by 4.8% and have climbed as much as 30% in the past 12 months. Used vehicle prices are also pushed higher. In October, used vehicle prices went up 2.5%. New vehicle prices also climbed by 1.4%.

As for food prices, consumers will experience a noticeable increase when buying groceries. Unfortunately, food prices climb 0.9% for a 5.3% increase during the last 12 months. Inflation is getting much worse before it gets better. Drastic action will need to be taken to stop the prices from climbing even higher.

Fed Officials

Unfortunately, the Fed has no intention of tackling this problem soon. Treasury Secretary Janet Yellen and Fed Chair Jerome Powell continue arguing that the price pressure will be temporary. They also argue that they’re directly related to the COVID-19 pandemic. Both agree that inflation has been worse than they expected, but they believe it will stabilize in the next year. Nevertheless, climbing inflation could force the Fed to act quicker than it initially signaled. Within the next few weeks, the central bank will reduce the bonds it buys each month.

However, Fed officials have confirmed that interest rate hikes are months away. Traders now expect the Fed to raise rates twice in 2022 and possibly a third time. The Fed has alluded to the fact that it will only increase the rate once though.

Unemployment

While unemployment is improving slightly, it isn’t enough to offset the ongoing labor shortage. On Wednesday, it was confirmed that there were 267,000 initial jobless benefits claims for the money. That is 2,000 less than the Dow Jones estimate of 269,000. As for continuing claims, they increased by 59,000 to top 2.16 million. While it is a step in the right direction, inflation will continue to climb higher until rates are hiked.

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Incoming Rate Hikes

The Fed may be forced to increase rates quicker than they initially expected. Traders expect the Fed to enact its first rate hike in September 2022. However, there are many who expect the Fed to begin raising rates even sooner. The Fed will complete the tapering of its bond-buying program by the middle of the year. Then, it will begin raising interest rates. There is an 80% chance that the Fed will have to raise rates by July. As for 2023, Wells Fargo suspects there will be more than three rates that year.

When interest rates begin to climb, the economy will change significantly. Consumers and businesses will stop spending. As a result, stock prices will drop sharply. It will also have a negative impact on the US housing market.