Federal Reserve Chairman Jerome Powell’s inflation dashboard is starting to show some signs of overheating.
From spreading price increases to rising wages, it’s signaling more caution on the inflation front than when Powell unveiled the benchmarks less than three months ago.
In a speech to the Fed’s annual Jackson Hole conference, held virtually in late August, Powell sketched out five ways of assessing the outlook for inflation and argued that each of them suggested there was no cause for alarm.
But a report last week showed consumer prices skyrocketed by 6.2% in October from a year earlier, led by cars, food, gasoline, electricity and fuel oil. The personal consumption expenditures price index, the Fed’s favored inflation gauge, rose at a year-on-year rate of 4.4% in September, the most since 1991 and well above the central bank’s 2% target.
Here are how Powell’s five different inflation tests are faring as President Joe Biden considers whether to appoint him to a second four-year term:
1. Are inflation pressures broad-based?
In August, Powell said the spike in inflation up until that point was largely the result of price rises in a narrow group of goods and services directly affected by the pandemic. That’s no longer the case.
Across the Board
“It has become relatively broad-based” in the last couple of months, said Joe Minarik, director of research for the Committee for Economic Development.
2. Are price rises moderating in those goods and services that have experienced the biggest run-ups?
While there were some signs that was happening a few months ago, it’s no longer so clear-cut. Yes, used-car price inflation has come down a lot from its 45.2% high in June, though it is still running in excess of 25%.
Annual price rises for durable goods in general though clocked in at 7.3% in September, the biggest increase since 1981. That’s been fueled by supply-chain snafus that seem unlikely to go away anytime soon and strong demand from consumers flush with cash from successive fiscal packages.
3. What is happening to wages?
Powell told the Jackson Hole conference that he saw little evidence of wage increases that might threaten excessive inflation. Worker pay has picked up since then, as employees have taken advantage of plentiful job openings to quit in record numbers in search of better opportunities.