‘Going to be horrible’: Inflation skyrockets to 31-year high in the US

Inflation in the United States has reached its highest level in 31 years, with the price of food, petrol and housing rising sharply.

Inflation has surged to a 31-year high in the US, raising the prospect the Federal Reserve will raise interest rates sooner rather than later.

There was a 6.2 per cent increase in the cost of living in the world’s biggest economy over the past year — the most since December 1990 and more than economists were expecting.

The US Labor Department reported the Consumer Price Index (CPI) jumped 0.9 per cent in October.

Much of the surge was seen in energy prices, with petrol spiking 6.1 per cent last month alone, and fuel oil seeing a massive 12.3 per cent increase.

The price food in the US is soaring. Picture: Getty Images/AFP

Grocery prices also climbed last month, with food at home rising one per cent, while food away from home, such as meals at restaurants, saw a 0.8 per cent increase.

Used cars have seen an abnormal price surge throughout 2021 that bolstered overall inflation. After dipping in August and September, the October report showed they again shot up 2.5 per cent.

“I hate to say this, but October’s core CPI is just a taster; the next few months are going to be horrible,” Ian Shepherdson of Pantheon Macroeconomics tweeted.

The rapid price increases also create a quandary for the Federal Reserve, which announced it will soon dial back its pandemic stimulus but remain patient before lifting interest rates off zero.

Kathy Bostjancic of Oxford Economics warned inflation may get worse in the months to come before decelerating next year, but if that does not happen, the central bank may have to quickly shift gears — a view other economists share.

“Strong demand and constrained supply will drive inflation higher in early 2022 which could lead the Fed to raise rates earlier than our December 2022 forecast,” she said.

There are fears Australia could be facing higher inflation too, fuelled by low interest rates and record government spending.

US stocks fell on the news and ASX futures were down 2 points to 7410 about 6am AEDT.

Bitcoin hit a new record high of $69,044, with prices skyrocketed about US$2500, or 4 per cent, about 45 minutes after the report.

US President Joe Biden says fighting inflation is his top priority. Picture: AFP

Fighting inflation Biden’s ‘top priority’

US President Joe Biden responded to the report, writing on Twitter, “Today’s report shows an increase over last month on inflation.

“Reversing this trend is a top priority.

“My Infrastructure Bill will bring down costs by reducing bottlenecks and I urge Congress to pass my Build Back Better Act — which will ease inflationary pressures.”

Today’s report shows an increase over last month on inflation. Reversing this trend is a top priority.

My Infrastructure bill will bring down costs by reducing bottlenecks and I urge Congress to pass my Build Back Better Act — which will ease inflationary pressures.

— President Biden (@POTUS) November 10, 2021

Good news out there for members of Congress (you too Republicans) there is a bill that they can support that will bring down costs and combat inflation. We welcome your support! https://t.co/24XpqU0Wt6

— Jen Psaki (@PressSec) November 10, 2021

He said US inflation would be his “top priority”, underscoring the continued threat to his presidency and the economic recovery.

Inflation had remained muted in recent years, but roared back with a vengeance in 2021 as American businesses began resuming normal operations with the help of Covid-19 vaccines.

Prices were pressured by high demand from consumers flush with cash, combined with shortages of US workers and snarls in supply chains worldwide that slowed deliveries of crucial components such as semiconductors.

Opponents slam ‘Bidenflation’

While Mr Biden has argued that the increases will prove temporary, they have given his opponents a potent counterargument to the spending plans he has staked his presidency on as his approval ratings sag.

“Spending trillions of more dollars on the Democrats’ tax and spending spree will only make the crisis Americans are facing worse,” Republicans on the House Energy and Commerce Committee tweeted, dubbing the trend “Bidenflation.”

The president scored a victory when Congress passed the infrastructure overhaul last week, but the Build Back Better plan to improve social services with a $1.85 trillion investment over 10 years remains mired in infighting among his Democrats who narrowly control the legislature.

Senator Joe Manchin, a Democrat who has objected to the plan’s cost, said on Twitter following the CPI report, “By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse.”

– with AFP