Higher prices for food, petrol and most other goods helped push consumer sentiment to a low of 11 in October.
“Inflation will help push the economy into recession,” said Peter Schiff, chief economist and global strategist at Euro Pacific Capital.
“It’s nonsense what everyone is saying about inflation being a good problem, and it’s just a consequence of our strong economy,” he added. “A strong economy does not produce inflation. It actually produces the reverse, because a strong economy means your economy is productive, you produce more goods and services, and you increase supply. We are in short supply because we have a weak economy.”
Consumer prices accelerated by 6.2% year-on-year in October, the fastest increase since November 1990, according to the Labor Department. Prices rose 0.9% for the month.
But Schiff said the real inflation rate is “well north of 10%” and “just as bad, if not worse, than any year in the 1970s.” The way the consumer price index is calculated was changed in the 1990s.
The adoption of President Biden’s trillion-dollar bipartisan infrastructure package could cause prices to rise even faster, some experts say. However, the Biden administration has insisted that the rise in inflation is a temporary by-product of the supply chain’s problems caused by the persistent pandemic.
Higher prices have already begun to erode the disposable income that was built up during the pandemic.
“While consumers have been able to enjoy very strong purchasing power since the pandemic started, it has recently changed,” wrote a research team from Bank of America led by US economist Michelle Meyer. “It’s not because of a lack of income support, but because more of that income is forced to go to higher prices.”
The real average hourly wage, adjusted for inflation, has fallen 1.2% year-on-year compared to last year. The decline comes as food and energy prices, which account for about 28% of spending on low-income consumers, have risen 9.7% this year.
The one-to-punch of higher inflation and subdued consumer sentiment has caught the attention of the Federal Reserve, which currently expects to complete the downsizing of its asset purchases in June before raising interest rates. However, investors are becoming wary of the Fed’s timeline for rate hikes.
The October CPI report raises “concerns that the Federal Reserve may have to raise interest rates sooner than previously expected,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.