The U.S. Bureau of Labor Statistics reported on Friday that the Consumer Price Index (CPI) rose 6.8% in November from a year ago, the largest 12-month increase since 1982. The data dealt a heavy blow to the Federal Reserve's long-standing narrative that inflation is 'transitory.'
Broad-based Price Increases
The CPI, which measures the average change in prices paid by urban consumers for a market basket of goods and services, rose 0.8% from October. Categories such as shelter, food, energy, and used vehicles posted significant gains. Supply chain disruptions and robust consumer spending have pushed inflation higher throughout the fall.
Sven Henrich, founder of NorthmanTrader, sarcastically commented on Twitter: 'As long as you don't need cars, housing, food or energy, inflation is only 6.8%.' In a blog post, Henrich criticized Fed Chair Jerome Powell for clinging to the 'transitory' description, calling it 'a colossal embarrassing blunder.' He compared Powell to former Fed Chair Ben Bernanke who in 2007 declared the subprime mortgage crisis contained. 'The Fed not only got inflation wrong, but by extension they got policy completely wrong,' Henrich added.
Economists Warn Inflation Won't Fade Quickly
Diane Swonk, chief economist at Grant Thornton, told The Washington Post: 'Yes, inflation can abate, but what policymakers care about is: Is it significant or insignificant to peoples' lives? This is inflation that's not likely to be insignificant anytime soon.'
Long-time Fed critic Peter Schiff argued that the central bank's plan to raise interest rates slightly above zero would not cure inflation but instead prolong its life. 'Investors think the Fed can cure the worst inflation in U.S. history by lifting rates slightly above zero because they know a tiny hike will crash the economy, killing inflation — but in reality it will extend its life,' Schiff said.
Market analysts now widely expect the Fed to accelerate its taper of bond purchases and deliver two rate hikes in 2022. The central bank's next policy meeting on December 14–15 will be closely watched for updated economic projections and signals on tightening.
For American households, rising prices are squeezing budgets. Moody's Analytics estimates the average household is spending about $250 more per month due to inflation. Food, gasoline, and used cars have seen the sharpest increases, disproportionately affecting low-income families.
Going forward, key variables include the duration of supply chain bottlenecks, energy price trends, and whether wage growth can keep pace. The Fed faces a delicate balancing act between controlling inflation and supporting the economic recovery.