Inflation Surged 6.2% in October
Inflation Hits a 30-Year High
Supply shortages and continued strength in consumer demand caused inflation to hit a 30-year high last month. October inflation was up 6.2% year-over-year, marking the fifth month in a row in which inflation has been above 5%. The consumer price index, which tracks the prices consumers pay for a basket of goods and services, increased in October at an annual pace not seen since 1990.
On a month-over-month basis the CPI was up 0.9% in October, which is a big increase from September when the CPI increased 0.4%. The price increases in October were across the board, with the cost for new and used cars, furniture, energy, and medical care all surging.
Consumer Demand Drives Inflation
The sustained increase in inflation is leading some economists to predict that higher prices may last for the next six months. After all, supply-chain problems are not easing as we head into the holiday season, and demand among consumers still remains strong.
Consumer demand is high for a number of reasons right now. Part of the trend is due to federal stimulus during the pandemic, which boosted consumers’ bank accounts. Additionally, the labor market is improving, giving consumers more disposable income. Additionally, there is still pent-up demand after consumers were unable to spend money on many goods and services during the height of the pandemic.
Consumer spending in the third quarter was up just 1.6%, which is down sharply from the 12% increase in the second quarter. However, that is being blamed on a lack of new cars and durable goods to purchase. Spending on services by consumers jumped 7.9% annually during the third quarter.
Inflation Here to Stay for Now
Inflation is not going away anytime soon, but most economists believe that in about a year, the situation should improve as supply constraints ease, consumer demand slows, and companies boost production again. Still, consumers will probably keep paying more for certain products and services for some time. Economists pointed to rent and medical care as areas which should see persistent price increases even as prices for other goods and services ease.
The Federal Reserve has said that inflation will be temporary, but the situation has proved more complicated than the central bank initially expected. As we head into the holiday season, consumers should expect to pay higher prices for some time.
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