Fed feels heat as inflation hits 30-year high

US consumer prices rose last month at the fastest annual pace since 1990, cementing high inflation as a hallmark of the pandemic recovery and eroding spending power even as wages surge and the worst are yet to come.

The consumer price index increased 6.2 percent from October 2020, according to the US Labor Department data released Wednesday. The CPI rose 0.9 percent from September, the largest gain in four months. Both advances exceeded all estimates in a Bloomberg survey of economists.

Higher prices for energy, shelter, food, and vehicles fueled the supercharged reading and indicated inflation is broadening out beyond categories associated with the reopening.

Against a backdrop of solid demand, businesses have been steadily rising prices for consumer goods and services at the same time supply chain bottlenecks and a shortage of qualified workers drive up costs.

The pickup suggests higher inflation will be longer-lasting than previously thought, putting pressure on Federal Reserve officials to end near-zero interest rates sooner than expected and potentially to quicken the pace of the bond-buying taper announced last week.

The data also threatens to exacerbate political challenges for President Joe Biden and Democrats as they seek to pass a nearly US$2 trillion (HK$15.8 trillion) tax-and-spending package and defend razor-thin congressional majorities in next year's midterm elections.

"Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me," Biden said in a statement, noting that a key driver of the increase was energy prices and that his administration is working on ways to reduce those costs.

A report on Tuesday showed prices paid to US producers also accelerated last month, largely due to higher goods costs, and adding to concerns about persistent price pressures across the globe.

Excluding the volatile food and energy components, so-called core inflation rose 0.6 percent from the prior month and 4.2 percent from a year earlier. The annual increase was the largest since 1991.

Shelter costs - which are considered to be a more structural component of the CPI and make up about a third of the overall index - rose 0.5 percent in October, the most in four months as higher rents and home prices feed into the data.

In China, inflation at the factory level last month increased by the most in 26 years, while consumer prices in Brazil sped up by more than forecast.