Key Inflation Gauge Shows Prices Accelerating at Fastest Pace Since 1990

November 24, 2021 Updated: November 24, 2021

Inflation picked up its already red hot pace in October, with the Commerce Department reporting today that the headline Personal Consumption Expenditures (PCE) index surged 5.0 percent over the year, vaulting to a level not seen since 1990 and reinforcing broader concerns about the persistence of inflationary pressures.

Meanwhile, the core PCE inflation index, which excludes the volatile categories of food and energy and is the Federal Reserve’s preferred inflation gauge for calibrating monetary policy, rose in the year through October at 4.1 percent, the fastest pace since 1991.

On a month-over-month basis, headline PCE accelerated at 0.6 percent, faster than the 0.4 percent rate in each of the prior three months. Core PCE also shot up, with October’s month-over-month rate of 0.4 percent coming in at double the rate in September, with both gauges showing inflation picking up its pace and suggesting higher price pressures are more entrenched than Biden administration officials and Fed policymakers expected.

Surging prices have become a key theme amid the economic recovery and a pain point for President Joe Biden, whose approval ratings have slumped. A new NPR/Marist poll showed Biden’s approval rating at 42 percent, the lowest reading since he took office, with inflation being the top concern among survey respondents.

“Regardless of strong job numbers or the soaring stock market, Americans are worried about the economy and the reason is inflation,” Lee Miringoff, director of the Marist Institute for Public Opinion, told NPR.

The poll showed inflation as the chief worry (39 percent), followed by wages (18 percent), and labor shortages (11 percent). Worries about housing costs, unemployment, and elevated gas prices were tied at 9 percent each, the poll showed.

The PCE inflation data will probably fuel policymaker anxiety, with Fed officials likely to mull accelerating the pace of phasing out the central bank’s massive $120 billion-per-month asset-buying program. At a policy meeting in early November, Fed officials decided to start reducing the monthly bond buys at a pace of $15 billion per month, though they left the door open to a faster schedule.

A number of economists, including several Obama-era advisers, have taken aim at the Biden administration and the Fed over the inflationary surge.

Steven Rattner, head of the Auto Industry Task Force under former President Barack Obama, recently became the latest Obama-era economic aide to sound the alarm on inflation, asking in an op-ed how the Biden administration could have gotten “this critical issue so wrong” and warning his Build Back Better agenda could exacerbate inflationary pressures.

Prior to that, former Treasury Secretary Larry Summers, who was early to sound the alarm on the current bout of surging prices, told CNN in an interview that he believes the labor market is tight and monetary policy too loose.

“We’ve got to recognize our problem is not that not enough people have jobs,” Summers told the outlet. “The current problem is that we are pushing demand into the economy faster than supply can grow and that we are just going to get more and more inflation until we stop doing that,” he said.

“That’s the real problem,” he added.

Tom Ozimek
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'