Surging prices are steadily chipping away at Americans’ buying power – as well as President Biden’s approval rating.
The Labor Department reported Wednesday that consumer prices were 6.2% higher in October than a year ago. That’s the sharpest increase since November of 1990.
Price increases were widespread, with energy, shelter, food and vehicles all costing more. Excluding volatile food and energy costs, prices were up 4.6%
Much of the upward pressure on prices is the result of a mismatch between booming demand and limited supply, as businesses struggle to find both parts and workers.
Many employers have increased pay in order to attract more workers. But growing paychecks have quickly been eroded by the rising cost of gas and groceries.
“For families, they’re feeling it right now,” says Mary Daly, president of the Federal Reserve Bank of San Francisco. “If you go to a grocery store, you buy food that you usually buy, you then fill your gas tank on the way home so you can go to work or take your kids to school, you’re feeling this.”
“When you then look at the winter coming and you realize your fuel bill for heating your home is going to rise as the winter comes, you’re nervous,” she added.
Biden faces political heat as prices surge
The Energy Department forecasts that heating bills will be up to 54% higher this winter than last as a result of higher energy prices and somewhat lower temperatures.
Stubbornly high inflation is turning into a liability for the president and Democrats as they head into midterm elections next year after losing this month’s Virginia gubernatorial election.
“Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me,” Biden said in a statement Wednesday. “I want to reemphasize my commitment to the independence of the federal reserve to monitor inflation, and take steps necessary to combat it.”
On Tuesday, Biden spoke with CEOs of Walmart, Target, FedEx and UPS to discuss steps that can be taken to strengthen supply chains and lower prices.
Polls show that less than 40% of Americans now approve of Biden’s handling of the economy, while 54% disapprove.
The administration and the Federal Reserve have argued that rising prices are largely a result of the pandemic and should cool off on their own as the health outlook improves.
But the Fed is facing growing scrutiny over its views. Former Treasury Secretary Lawrence Summers has strongly disagreed and warned that inflation is in danger of spiraling out of control.
Daly, who serves on the central bank’s policy-setting committee, says the Fed is monitoring inflation closely. She and her colleagues on the committee are being cautious not to raise interest rates too quickly.
“If we react to something that’s related to a factor we hope will go away — we hope the virus gets behind us — then we’ve overreacted,” Daly says. “And that’s not free.”
Raising interest rates is the Fed’s traditional tool to combat inflation. But it’s also likely to slow job growth, at a time when millions of Americans are still out of work.
There are positive signs, however
Although supply-chain bottlenecks and the resulting inflation have lasted longer than many forecasters expected, there are signs that price pressures may be easing.
An index of wholesale prices released on Tuesday showed that monthly price increases were smaller than they were earlier this year.
“The encouraging news is these monthly numbers are coming down, relative to their peak levels,” Daly says, suggesting inflation will eventually cool off, especially if the pandemic fades.
“The inflation numbers you’re seeing are related in my best judgment to the pandemic-related disruption,” Daly says. “They should subside as the pandemic recedes. And if they don’t, we’re prepared to use every policy tool that we have to deliver price stability and full employment.”