Prices Climb at Fastest Pace in 30 years in U.S. as the Supply Chain Continues to Decline

The Federal Reserve’s preferred inflation gauge accelerated in August, keeping the pressure on economic policymakers who are watching warily as supply chain issues and commodity costs threaten to keep price gains elevated for longer than they had expected.

The Personal Consumption Expenditures index continued to climb at its fastest pace since 1991, rising 4.3% in the year through August. That beat out the prior month’s reading of 4.2%.

The monthly index also remained elevated, climbing 0.4% for a second straight month.

Inflation has been fueled by epidemic-related problems, including shipping problems, as strong demand for goods from Asia and other regions has taxed shipping routes and increased transportation costs, and shortages in key components have pushed up prices for everything from cars. Even home washing machines.

Federal Reserve and White House officials have been clear that they expect these pressures to abate as the economy fully reopens and businesses return to normal.

A separate inflation indicator released earlier – the CPI – showed some early signs of price moderation, although it remained high at 5.3%.

But the fresh data comes as economists regard the horizon with apprehension. Factory shutdowns in Asia continue to ripple through the global supply chain. Commodity costs, including those for oil and gas, are rising. Rents are rebounding at a breakneck pace after a pandemic swoon, threatening to push housing inflation — an important part of the overall price index — higher.

Officials at the Fed are watching those trends as they consider when — and how quickly — to remove the economic support that the central bank has been providing during the pandemic. While they say that they still expect inflation to fade, they acknowledge that the process is taking longer than they had expected or hoped.

It is “frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse,” Jerome Powell, the Fed’s chair, said while speaking on a panel Wednesday. “We see that continuing into next year, probably, and holding inflation up longer than we had thought.”

Inflation and supply issues also pose a headache for the Biden administration, as rising costs chip away at voters’ paychecks and as houses and cars prove sharply more expensive and difficult to buy.