A previous version of the report implied that the purchases of gas, wine, and concert tickets were not typical of average Americans. The story has been changed.
The highest annual U.S. inflation rate in almost 31 years has left many traders flummoxed and caused one financial firm to warn that the "genie is out of the bottle."
The University of Michigan consumer sentiment index fell last Friday to the lowest level in a decade, and there were other signs of growing inflation worries. In financial markets, traders wanted the Federal Reserve to act quicker and investors preferred gold GCZ21, a traditional haven from higher prices. The average American was upset by the rising cost of everything.
It feels like inflation is never-ending, and can lead to weird shopping habits.
Inflation fears have lingered and occasionally been overshadowed by worries of an economic downturn. There is a risk of a vicious feedback loop between inflation and expectations, which may prove difficult to arrest once unleashed, according to an economist at Monetary Policy Analytics in Washington. He likened the dynamic to a switch that is hard to turn back off, in which the prospect of ever-rising prices remains constant in people's minds and there is little or not much the Fed can do.
Subadra Rajappa, a strategist at Société Générale, told MarketWatch that the inflation genie was out of the bottle after the consumer-price report for October. We are starting to see more persistent, broad-based inflation take over, and it is coming from more permanent, stickier sources. The risk is that if Fed policy makers wait too long, they will need to pump on the brakes a lot faster, threatening the recovery. The team at Société Générale said that markets are pushing for a faster tightening cycle after a retreat from central bankers.
Expectations that businesses should be able to pass on higher prices to consumers have generally been supported by the stock market.
The headline annual inflation rate in October was the highest since November 1990 and it was due to rising costs of gas and rent and medical care. It was the sixth month in a row that the readings were over 5%, more than doubling the Fed's 2% target.
Escalating inflation and a growing belief among consumers that effective policies are not being developed to combat it were identified as a big factor behind the drop in the University of Michigan's sentiment report. The average American has not had to worry about high inflation for decades, and many traders were not alive during the 1970s-era stagflation. Many people have been caught off-guard by the strength of recent price rises.
Jay Hatfield of Infrastructure Capital Advisors and Lindsey Piegza are both investors who believe the Fed has lost control of inflation. The headline inflation rate is expected to reach 7% over the next several months, according to big-name firms. The average price of gas in the US is $3.41 on Saturday, Nov. 20, according to the Federal Reserve, but $4.70 in California, even as the Federal Reserve appears to be sticking to the view expressed in its Nov.
There is more uncertainty around inflation now than there was a few months ago.
Greg Jones, a 63-year-old retired handyman, told MarketWatch that the price of a regular burrito at his favorite spot in Oakland has gone up to $12 from $7. I would like to support other live performances, but my wallet is limited.
