An updated version of this story has been published here.
For months, officials at the Federal Reserve and White House argued that pandemic-era inflation will be temporary. But they’ve had to back away from that message, which was increasingly hard to square with what was happening in the economy — and the way Americans experience it.
Persistent supply chain backlogs and high consumer demand for goods have kept prices elevated. There is no clear answer for when that will change, leaving Americans to feel the strain in their pocketbooks in the meantime. This is a breakdown of how we got here.
Economists caution against drawing too much from one month of data, good or bad. But policymakers have been forced to acknowledge that inflation is larger and more persistent than they expected earlier in the year. The risk, too, is that the more broad-based and embedded high prices become, the harder it will be to rein them in.
“We see higher inflation persisting, and we have to be in position to address that risk should it become really a threat to — should it create a threat of more persistent, longer-term inflation,” Fed Chair Jerome H. Powell said in November.
Policymakers initially argued that price increases were limited to industries like hotels, airlines and cars. But federal data shows broad-based higher prices, propelled by a range of categories, including shelter and food. Prices for medical care, household furnishings and operations, and apparel have also gone up.
The concerns over soaring home prices and rising rents have economists worried about whether cost increases will last even after the coronavirus pandemic has mostly passed. The still hot housing market has made it that much more difficult for first-time buyers, or those without cash or solid credit, to buy a home. Meanwhile, rising rents in major metropolitan areas are pushing out more people who are now wondering if they can afford to stay.
On top of it all, an energy crisis has ricocheted through the supply chains. Higher energy costs are pushing up the prices of just about every other good, economists say. Recent moves by the Biden administration intended to bring costs down at the pump aren’t reflected in the latest inflation data.
Families across the nation are also facing higher prices at the grocery store, which have people stretching their wallets for dairy, fruits and vegetables, baked goods and meats. Prices for meat, poultry, fish and eggs have surged in particular above other grocery categories. The White House has pointed to broad consolidation in the meat industry, saying that large companies bear some of the responsibility for pushing prices higher.
Meat industry groups disagree, arguing that the same supply-side issues rampant in the rest of the economy apply to proteins because it costs more to transport and package materials, while labor shortages have held back meat production.
Throughout the pandemic, new and used cars have been a kind of litmus test for the country’s supply chain issues and related price hikes. Used cars and trucks have been a driving force behind the surge in inflation this year.
The market relies heavily on trade-ins and auto parts, which have been in low supply amid a global microchip shortage. That pinch has made it more expensive for dealers to get any of their models, much less repair them. All of those problems are also hurting the supply of used cars, which depend on trade-ins as well as rental car company inventories.
Laura Reiley contributed to this report.
A chart in an earlier version of this piece incorrectly labelled the difference between vehicle price indexes as percent change. The chart has been updated to display percent change.