The Federal Reserve’s preferred inflation indicator accelerated in August, maintaining pressure on economic policymakers who are suspicious of supply chain issues and commodity costs threatening to keep price increases longer. longer than expected.
The personal consumption expenditure index continued to climb at its fastest pace since 1991, increasing 4.3% during the year through August. That beat the previous month’s reading by 4.2 percent.
The monthly index also remained high, climbing 0.4% for a second consecutive month.
Inflation has risen thanks to issues related to the pandemic, including shipping issues, as high demand for goods from Asia and elsewhere taxed freight routes and increased transit costs. Shortages of key parts have driven up prices for everything from cars to washing machines. Fed and White House officials have made it clear that they expect these pressures to ease as the economy reopens more fully and business returns to normal.
A separate inflation index released earlier, the Consumer Price Index, showed some early signs of moderation in August, although it remained high at 5.3%.
But the new data comes as economists look to the horizon with trepidation. Plant closures in Asia continue to impact the global supply chain. The costs of commodities, including oil and gas, are rising. Rents are rebounding at a breakneck pace after a pandemic swoon, threatening to push housing inflation – a major part of the overall price index – up.
Fed officials are monitoring these trends as they consider when – and how quickly – to remove the economic support the central bank provided during the pandemic.
While they say they still expect inflation to drop, they recognize that the process is taking longer than they expected or expected.
It is “frustrating to see bottlenecks and supply chain problems not improving – in fact, at the margin, apparently getting a little worse,” said Jerome H. Powell, president of the Fed, at a conference Wednesday. “We see this probably continuing next year and maintaining inflation longer than we expected.”
Inflation and supply issues also pose a headache for President Biden’s White House, as rising costs eat away at voters’ paychecks and homes and cars prove significantly more expensive and difficult to afford. to buy.
Republicans blamed the price hike on government spending. The acceleration is due in part to the fact that supply has not been able to adjust quickly enough to meet the demand that huge amounts of pandemic-era stimulus have helped unleash.
They also use inflation to bludgeon the administration’s plans for additional spending.
Bryan Steil, a Republican representative from Wisconsin, asked Treasury Secretary Janet L. Yellen about how spending and the trajectory of debt might affect inflation going forward at a hearing Thursday. He also asked Mr. Powell, who was testifying alongside Ms. Yellen, about the Fed’s plan to deal with rapid price hikes.
“Regardless of what the White House press team says, I think people are really seeing the impact of rising prices day in and day out,” Mr. Steil said, later suggesting that “spending Uncontrolled ”in Washington would raise consumer inflation expectations.
The Fed is targeting inflation of 2% on average over time; under a policy it adopted last year, it can tolerate periods of higher prices as long as they are not expected to last. Officials are monitoring the current rise in prices to ensure they moderate as expected.
Long-term consumer and market inflation expectations so far have remained subdued, suggesting that people still expect price gains to slow down over time. Fed officials are hopeful that price inflation will be kept under wraps in the long run.
But policy makers are positioning themselves for a different reality. The central bank has made it clear that it could announce a plan to withdraw from its major bond buying program as early as November, the first step in removing monetary policy support to the economy.
Some Fed officials have pointed out that closing the bond buying program could make the central bank more nimble if it finds it needs to raise interest rates to control inflation next year.
Companies are also anticipating the possibility that pricing pressures and supply chain disruptions will persist.
“We don’t expect supply chain pressures to ease,” Mark J. Tritton, managing director of Bed Bath & Beyond, said on a earnings conference call on Friday. He noted that the company is trying to adjust its operation to cope with the issues, including trying to carefully manage inventory.