But persistent supply chain backlogs and, most recently, the delta variant of the coronavirus, 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.
Policymakers were encouraged when August prices eased slightly, breaking an eight-month streak of rising or steady inflation. But September reversed course, coming in at 5.4 percent compared to the year before, in large part due to the rapidly spreading delta variant stifling the recovery. Now October showed even shaper inflation, with prices rising 6.2 percent compared to the year before.
Economists caution against drawing too much from one month of data, good or bad. But the overall picture increasingly suggests that inflation is sticking around longer than economic policymakers at the Fed and White House anticipated just a few months ago.
Policymakers often argue that price increases are limited to industries like hotels, airlines and cars. But federal data on Wednesday showed “broad-based” higher prices, propelled by not just energy and used cars, but by shelter, food and new vehicles. Prices for medical care, for household furnishing and operations, and for recreation all increased in October.
The concerns over soaring home prices and rising rents have economists worried about whether cost increases will last even after the 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. Gasoline prices are up 49.6 percent from a year earlier, according to the October inflation data. And higher energy costs are pushing up the prices of just about every other good, economists say, and pinching an already strained supply chain.
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.
Meanwhile, the pandemic triggered a massive rental car shortage after a slew of large companies sold off hundreds of thousands of models that sat idle at the start of the pandemic as Americans stopped traveling. Back in May of this year, more than one of every three rental cars that had been in service before the pandemic was no longer available.
However, as more people got vaccinated and started itching for spring and summer trips, customer demand boomed. Companies could not get their hands on cars fast enough, driving up prices while people scrambled for reservations and companies rushed to restock lots.
New cars are now also seeing rising prices thanks to the ongoing microchip shortage. Pandemic-related shutdowns have pinched factories around the world. For instance, auto production in North America was recently slowed by shutdowns in countries like Malaysia and Vietnam.
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.
Laura Reiley contributed to this report.