US inflation accelerates, broadens, and becomes stickier. By John Carney.
Consumer prices rose at their fastest rate in decades in October, data from the Department of Labor showed Wednesday.
The Consumer Price Index rose 0.9 percent in October from September, exceeding expectations for a 0.6 percent rise. Compared with the prior October, prices are up 6.2 percent, exceeding expectations for a 5.8 percent rise and the highest annual rate since 1990. …
Graphs of US CPI growth. Inflation, the rate of increase of the US money supply, is several points higher.
Earlier this year, … Fed officials and others [expected] inflation to taper off when temporary supply bottlenecks cleared up and demand surges related to the reopening of parts of the economy subsided.
Instead, the tide of rising prices has accelerated, broadened, and become stickier. The Department of Labor described October inflation as “broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors.”
The “transitory” narrative is crumbling. Inflationary expectations are rising.
Australian inflation, by Robert Gottliebsen.
The dramatic events on Wall Street last night mean that mortgage rates in Australia are almost certain to rise, irrespective of what the Reserve Bank of Australia might do.
Both our Reserve Bank and the US Federal Reserve have believed — perhaps hoped is a better word — that the inflationary pressures seen in recent months were temporary.
The latest spike in the US inflation rate has caused markets to trash the Federal Reserve view and US bond yields have jumped as a result of sharp falls in bond prices.
An important part of the funding of Australian banks is borrowing overseas at interest rates based on US bonds. The cost of those overseas borrowings has been rising in recent months and now it will rise even further. ..
Australia is being plagued with a massive shortage of labour across many areas the country, which is pushing up wage rates. There are dangerous supply chain issues and the costs of goods out of China is rising.
What is holding wages back is the massive employment in supermarkets and other employment based on enterprise agreements that were set in difficult economic times. So far there has not been a mass exodus of supermarket staff to join the delights of the higher wage rates in other segments of the community but this is a relatively recent environment. …
What, printed money?
Meanwhile, all the warnings about the overheating of the US economy are now coming home with a vengeance. Exactly the same thing is happening in Australia, as like the Federal Reserve, our Reserve Bank continues to print money despite the boom.
Companies around the world are battling supply chain bottlenecks as demand increases converge with industrial enterprises struggling restore production after the Covid-induced shutdowns.
In China this has been exacerbated by power shortages partly as a result of the bans on Australian coal. Given the strong demand from consumers there is no sign of the shortages abating. …
All this coincides with the looming industrial revolution as part of the decarbonisation of the world industrial base. This extra investment is going to create substantial demands for funds around the world. The era of very cheap money may be over.
Official interest rates cannot increase much because governments owe too much money — and their interest bills will explode if rates rise.
Instead, a new era has begun. Inflation is being allowed to rage at a moderate level in order to whittle away the real value of debt, which is at historically high ratios everywhere. Borrowers can rejoice, lenders lose big time.
Isn’t it wonderful what bureaucrats can do? People sometimes overlook the fact that for decades it has been bureaucrats at central banks that have set interest rates by decree. Price control didn’t work for the Soviet Union either.
