Inflation Spikes at the Fastest Pace in Almost Four Decades

Inflation rose last month at the fastest pace in almost 40 years, since Ronald Reagan was the U.S. president, as the global pandemic continued to snarl supply chains.

Consumer prices increased 6.8% in November from a year earlier, the fastest pace since 1982, the Labor Department said in a Friday report. Gasoline rose 60%, car rentals rose 31%, uncooked beef steaks rose 28%, new and used cars rose 20%, coffee rose 11%, and whole milk rose 8.2%, according to the data.

Excluding volatile food and energy items, so-called core inflation increased 4.9% from a year ago, a new 30-year high. On a monthly basis, core prices advanced 0.5%.

Prices are soaring as the global Covid-19 pandemic snarls supply chains, limiting the availability of some items. The inflation spike reinforced expectations the Federal Reserve will accelerate the wind-down of its bond-buying program at its meeting next week, the year’s final gathering of the policy-setting Federal Open Market Committee.

“The highest year-on-year inflation in almost 40 years solidifies market expectations for a more hawkish Fed in 2022,” said Will Compernolle, a senior economist at FHN Financial in New York. “The key questions are when rate hikes will begin and how rapid they will be.”

The Fed has indicated it won’t begin hiking its benchmark overnight lending rate until the tapering of its bond-buying program is finished. At the pace it set on Nov. 3, that would be midway through next year. However, Fed Chairman Jerome Powell said in Congressional testimony last week that the pace likely would pick up in response to inflation.

"Since the last meeting, we've seen basically elevated inflation pressures, we've seen very strong labor market data without any improvement in labor supply, we’ve seen strong spending data too," the Fed chief told members of the Senate Banking Committee last week. "We are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months."