Inflation indicator

The rate of consumer price increases reached a three-decade high as supply chain disruptions and holiday shopping demand fueled inflation across a wide range of industries.

However, as hot as October’s report was, some fixed income traders and economists believe inflation will be more excellent in November and December and that last month’s surge may have been a peak.

Faucher’s remarks came as the Labor Department reported that the consumer price index, or CPI, increased 6.2 percent year on year in October. This was the most significant increase since December 1990 and the fifth straight reading above 5 percent.

Markets reacted predictably to the October print, positioning for further price increases. The Baltic Dry Index began to rise in January, rising from 1,350 in December to 2,000 in January.

The CPI rose to 2.6 percent in less than two months, exceeding the Fed’s long-term inflation target of 2 percent and reaching its highest level since 2018.

The BDI has continued to rise, foreshadowing increases in consumer prices. That is, until October 7, when it soared to 5,650, its highest level in over a decade.

The major component of inflation

Those who believe a significant inflation component is nearing its peak point out that BDI updates are daily and tend to lead other inflation gauges, whereas CPI reports are more retrospective.

The Bureau of Labor Statistics then compiles the survey results from the entire month. It distributes them to the world about a week after the start of the following month. That is, the inflation reading is, by definition, backward-looking. Inflation threatens the Biden administration’s policy agenda and any Democrats running for office in 2022. Fifty-seven percent of Americans disapprove of Biden’s handling of the economy, while only 40 percent approve. 

The White House stepped up its supply chain efforts. They announced that it will soon begin work with the US Army Corps of Engineers on a $4 billion project at coastal ports and inland waterways.

Another factors

There is still much disagreement about interpreting the October inflation report and how prices will move in the coming months.

Some warn that higher wages and more generous benefits packages may lead some businesses looking to hire to raise prices again in the future to offset a hit to their bottom line. As Americans complete their holiday shopping, their demand for international goods may decrease, easing congestion at West Coast ports. Instead, they could choose to spend their money on the service sector, such as traveling, visiting spas and resorts, and attending live music and sporting events.

In that case, it’s unclear what might happen to inflation. The Fed, which keeps inflation stable, predicts that inflation will worsen before it improves.

The inflation we’re seeing isn’t the result of a tight labor market. The persistence of supply chain constraints and their effects on inflation are extremely difficult to forecast. Global supply chains are intricate. They will resume normal operations, but the timing is highly uncertain.