Key US inflation measure posts biggest jump since 1990s

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A US inflation measure closely watched by the Federal Reserve posted its biggest year-on-year jump since the 1990s last month, adding to pressure on President Joe Biden as his White House scrambles to tame rising costs.

The commerce department’s core personal consumption expenditure index, which strips out volatile food and energy costs, rose 4.1 per cent in October compared with a year ago.

The jump represents a significant increase from the 3.7 per cent annual rise in September, and was in line with consensus forecasts.

When energy and food prices are included, the PCE price index rose 5 per cent compared with October 2020, faster than the 4.4 per cent rise in September. The data were released as part of a report that also showed personal income rising 0.5 per cent in October compared with the preceding month, while consumption rose 1.3 per cent.

Battling high prices has become a central focus for Biden’s economic team after recent data showed US consumer price growth jumping at the fastest pace in roughly three decades, confounding hopes that inflationary pressures would be shortlived.

This month, the Fed began winding down its monthly $120bn asset purchase programme, the pace of which suggests it could end in June 2022.

Minutes of the Fed monetary policy committee’s November meeting, also released on Wednesday, showed that officials “stressed that maintaining flexibility” was important as the programme is gradually eased, with certain committee members advocating that the central bank more quickly tighten policy in the face of strong inflation.

Some policymakers said at the meeting that they believed a speedier taper would put the committee “in a better position” to tweak policy in light of high inflation. But the minutes on the whole did not indicate a committee biased towards an acceleration, with “a number of participants” stressing a “patient attitude”.

Inflation has accelerated this year alongside a jump in wages, fuelled by multiple rounds of stimulus cheques and employers competing for new workers. Incomes rose 0.5 per cent last month, following a 1 per cent drop in September.

The latest data come as applications for US unemployment benefits fell to their lowest weekly level in more than five decades on Wednesday, as filings slowed heading into the Thanksgiving holiday and with business struggling to recruit staff amid labour shortages.

State unemployment offices received 199,000 initial jobless claims on a seasonally adjusted basis last week, down from 270,000 the previous week, according to the labour department. That brought jobless claims to their lowest level since November 1969, and compares with a previous low of 205,000 in February 2020.

Claims also slipped more than economists had anticipated, with an average estimate of 260,000 for the week.

“It is fair to say that we didn’t see that coming,” said Mark Hamrick, senior economic analyst at Bankrate.

“Americans head into the heart of the holiday season with a reasonable expectation that an already tight job market will continue to tighten in the months ahead,” he added.

Some economists cautioned against reading too much into the report, noting that last week’s unadjusted figure for initial claims rose by 18,000.

There were 2m Americans actively collecting benefits as of November 13, below the 2.1m continuing claims recorded a week earlier. Continuing claims remain above pre-pandemic levels of about 1.7m.

Lay-offs have slowed as employers struggle to hire staff and keep the workers they already have, with a record number of Americans quitting their jobs in a tight labour market.

Over the past four weeks, the US has averaged about 252,000 initial claims per week, down from 345,000 in early October.

A separate report from the Census Bureau on Wednesday said new orders for long-lasting goods such as cars and kitchen appliances fell 0.5 per cent in October from the previous month, as factories continued to wrestle with shortages of parts and labour. Unfilled durable goods orders were up 0.2 per cent in a sign of strong demand.

The US economy expanded at a 2.1 per cent annualised rate in the third quarter, up from an initial estimate of 2 per cent, according to an update from the Bureau of Economic Analysis. The revised figure reaffirmed that growth slowed sharply during the quarter, dragged down by supply chain bottlenecks.

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