The US consumer price index added 6.2 per cent in the 12 months through October, marking the largest year-on-year increase since November 1990 and the sixth month that inflation has exceeded 5 per cent.
Month-on-month, in another record, CPI added 0.9 per cent.
Consumer prices were boosted by higher energy, shelter and food prices, indicating that inflation may not purely be a result of the economy reopening.
According to Seema Shah, chief strategist at Principal Global Investors, these figures have delivered a significant upside surprise to already very elevated forecasts.
“I expect lots of eyeballs were bulging out of their sockets when they saw the number come in,” said Ms Shah.
“Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures,” she added.
The question now is, with inflation topping 6 per cent, is this sufficient to force the Fed’s hand?
“This long, long transitory period has to heap pressure on the Fed – and yet it is doubtful they will act before late-2022. Not only is an extensive period of above-target inflation already baked into Fed forecasts, but their more dominant focus on maximum employment suggests the Fed will maintain its more patient approach.
“Their success in reading the tea leaves correctly is one which investors are likely to continue to debate for many months to come,” Ms Shah explained.
Just last week, the Federal Reserve characterised inflation as “transitory”, stressing its choice to wait for more job growth before lifting rates.
“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the Fed’s statement said last Wednesday, signalling its move towards a more “patient” approach.
“The committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” it continued.
As things currently stand, the markets are expecting the Fed to lift rates when it finishes tapering in June.
