The Labor Department reported earlier this week that the Consumer Price Index–which attempts to quantify prices of a broad swaths of goods and services in the American economy–increased 0.9 percent in October, resulting a 6.2 percent increase in the CPI since last year. That’s the highest annual increase in the CPI in more than 30 years, since December 1990. And the CPI increase measured in some metropolitan areas was even worse: the Atlanta Journal-Constitution reported, for example, that the CPI increase in that area was 7.9 percent, the highest increase in any city in the country.
It’s pretty clear that inflation is back as an area of significant economic concern. Just hearing that word sends a shudder of dread through those of us who lived through the high inflation period of the ’70s and early ’80s and the belt-tightening days when the Federal Reserve took draconian steps to halt the inflationary spiral and wring the constant price increases out of the economy.
The big question right now is just how persistent the inflationary spiral will be. The Federal Reserve says we’re in the midst of “transitory” price increases, but the most recent CPI data has increased market skepticism of that rosy outlook. The data showed price increases pretty much across the board, and not limited to more volatile areas that can react to temporary shortages, like fuel and food. Even if food and fuel prices are stripped out of the analysis, leaving only “core CPI” to be considered, prices are rising at a 4.6 percent annual clip, which is the highest “core CPI” rate since August 1991.
Even worse, the Labor Department reported that the CPI surge meant that real wages, after inflation, fell 0.5 percent from September to October. That’s a familiar scenario for those of us who lived through the country’s last big inflationary period, in which wage hikes and salary increases never quite seemed to catch up with the CPI. In those days, the upward spiral in prices put many people into a downward spiral in terms of their personal finances and debt situation and really hurt seniors and others living on fixed incomes.
Perhaps the Fed and Treasury officials who reassuringly contend that the inflation spike is temporary will turn out to be right–but what we’ve been reading about “supply chain” seems calculated to feed into more price increases, not less, and shortages that the law of supply and demand dictates will produce higher price tags as we head into the holidays. We need to do something about inflationary pressures and fix the supply chain problems before we find ourselves trapped in another upward-downward spiral.