U.S. show the highest inflation rate since 1990

Last month, the U.S. cost of living reported the fastest annual pace of growth in more than 30 years, with prices for almost everything rising much faster than usual.

According to the U.S. Bureau of Labour Statistics, the overall consumer price index was up by 6.2% in October compared to a year earlier. October alone saw about a full per cent increase.

Although almost every subindex rose, the main factors pushing inflation to a record high level were energy, shelter, food, new and used vehicles.

As a rule, policy makers exclude the influence of such volatile items as food and energy costs. However, even in that case, the U.S. inflation rate hasn’t reached such a high mark in 30 years. The less volatile rate stopped at 4.6%, marking the largest gain since 1991.

Meanwhile, the U.S. energy prices were up by 30% annually, reporting the fastest pace since 2005.

Following a decline during the pandemic, inflation has returned with a lot of strength around the world, and there are several reasons for that. First of all, the government support programs designed for keeping people employed, combined with low interest rates, have filled the world with cash, which needs to be spent on something.

Economist Sal Guatieri with Bank of Montreal says it was a breathtaking change of inflation direction.

“It’s extremely difficult to believe that the annual rate was almost zero (0.1%) in May 2020. Nevertheless, this is what happens when supply can’t keep up with the stimulus-supported demand,” – he noted.

Economists hoped that inflation would be “transitory,” which means it’s affected by short-term factors.  However, the longer such inflation growth lasts, the more chances we have that the central banks will have to start raising interest rates sooner than expected in order to restrain it.

Last week, the Fed said it doesn’t plan to raise its rate until at least next summer, but Simon Harvey with Monex Canada points to investor reaction to the skyrocketing inflation. They doubt the banks will not start acting sooner.