November 15, 2021 — US Inflation Hits 31-Year High


US inflation rose to 6.2 percent for October, while the corresponding core inflation index (excluding food and energy) was up 4.6 percent year over year.  This was the fastest 12-month pace since 1990 and the fifth month in a row inflation has exceeded 5 percent. Month over month, inflation increased by 0.9 percent, up from 0.4 percent in September.

The unusually high pace of inflation has been prompted by a faster than expected recovery after the covid setback, trillions of dollars of government stimulus monies and supply chain bottlenecks. With more money in the pockets of consumers, demand for goods and services has risen markedly.

The inflation surge is creating an issue for the Fed’s unwinding of its easy-money strategy. The Fed has been holding to the theory that the surge in inflation is temporary, and has been slow to react; however, some economists predicting it will get worse before prices settle back down.  The Fed meets for the last time this year on December 14-15, and it will be interesting to see how their policy stance will be adjusted.