Category: Economy

As Americans sit down at their Thanksgiving tables, many of the items in front of them will be more expensive than they were last year. Pies in particular. And climate change is a contributing factor.

Inflation is hitting every sector of the economy, and food products are not immune. But many of the ingredients that go into holiday pies have been hit by floods, fires and drought, causing shortages and pushing prices higher.

For example, the crust. Wheat prices are now at the highest level since 2012 and are up over 10% in just the past month. Severe drought in the U.S. west and northern plains caused what the U.S. Department of Agriculture is estimating will be the worst wheat production in nearly two decades.

Those higher costs for wheat, as well as alfalfa, make feed costs higher, causing dairy prices to rise. Cows also produce less milk during droughts.

Then there’s the pie filling.

“The Pacific Northwest had a terrible year between the heat and the drought. We saw a lot of things that they are good at, like cherries and apples, see a pretty major hit to their production from where they typically are,” said Michael Swanson, agriculture economist at Wells Fargo.

Pumpkins are also pricier, due to heavy rains in the midwest that caused a pumpkin shortage. The average price of a pumpkin was 15% higher this fall.

Even honey. Wildfires in the West left honeybees with little to eat. States like California, Colorado, Montana and Utah have lost nearly half their honeybee colonies in the past two years, due to disease, starvation and unusual weather.

Imports are also affected. Prices for vanilla from Madagascar and chocolate from Brazil are also rising due to severe weather and flooding.

“Now we worry about freezes in Brazil even more than we did before, or floods in China. And so we can’t run and hide anymore from global severe weather events because they’re all part of the food chain,” said Swanson.

At The Pie Shop in Washington, D.C., Thanksgiving orders are all filled and the pies are piling up, but so are the costs.

“I would say there are a number of ingredients that on some weeks are almost double what they were last year,” said Sandra Basanti, who has owned the Shop with her husband for 12 years.

Basanti tries to source ingredients locally to keep costs down, but large items like flour, sugar and eggs need to be bought from bulk distributors. She also makes savory pies that require beef, and the cost of that is rising as well.

All of it is hitting her small business especially hard.

“Usually Thanksgiving is when we’re able to make a little extra money to cushion us for the slow winter. However, this year, I’m not so sure that we will really even be profitable,” she said.

Over 12 years Basanti said she has raised her prices maybe 10%, but that is not enough to make up for the recent hike in her production costs. She doesn’t want to raise prices now, she said, because, “There’s only so much you can really charge for a pie.”

Federal Reserve officials at their meeting earlier this month expressed concern about inflation and said they would be willing to raise interest rates if prices keep rising.

The committee that sets interest rates for the Fed on Wednesday released the minutes from the November session where it first signaled that it could be dialing back all the economic help it’s been providing during the pandemic.

The meeting summary indicates a lively discussion about inflation, with members stressing the willingness to act if conditions continue to heat up.

“Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives,” the minutes stated.

Officials stressed a “patient” approach regarding incoming data, which has shown inflation running at its highest pace in more than 30, the years.

But they also said they would “not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives.”

Following the two-day session that concluded Nov. 3, the Federal Open Market Committee indicated it will begin cutting back on the monthly bond-buying program that had seen it purchasing at least $120 billion in Treasurys and mortgage-backed securities.

The goal of the program was to keep money flowing in those markets while maintaining broader interest rates at low levels to boost economic activity.

In its post-meeting statement, the FOMC said “substantial further progress” in the economy would allow a $15 billion a month reduction in purchases — $10 billion in Treasurys and $5 billion in MBS. The statement said that schedule would be maintained through at least December and probably continue going forward until the program wound down – likely by late spring or early summer 2022.

The minutes noted that some FOMC members wanted an even faster pace to give the Fed leeway to raise rates sooner.

“Some participants suggested that reducing the pace of net asset purchases by more than $15 billion each month could be warranted so that the Committee would be in a better position to make adjustments to the target range for the federal funds rate, particularly in light of inflation pressures,” the minutes said.

That’s important because inflation has gotten even hotter since the November meeting. In previous cycles, the Fed has raised interest rates to cool the economy, but officials have said they are willing to allow inflation to run hotter than normal to let the employment picture improve.

Markets, though, are anticipating a more aggressive Fed.

Traders in contracts that bet on the future of short-term rates are indicating the Fed will raise its benchmark rate three times in 2022 in25 basis point intervals, though current official projections are for no more than one hike next year. However, those markets are volatile and can change quickly depending on the signals the Fed sends.

FOMC members expressed concern at the meeting that the continued high inflation readings could influence public perception and “expectations were becoming less well anchored” to the Fed’s 2% longer-run target.

After lying dormant for years, inflation is once again chipping away at American wallets, and it has become a chief concern for the White House.

In recent months, the Biden administration ramped up its efforts to remedy the supply-chain interruptions economists blame for hot inflation. And President Joe Biden has been pushing his economic agenda as a remedy for inflation worries.

But ask investors, economists and the American people for their thoughts on inflation, and no one sees inflation cooling off anytime soon. That means everyone from the president to the everyday voter will likely need patience to get through this.

“I don’t think you want to promise people inflation is going away,” said Jason Furman, an economist and former chairman of the White House Council of Economic Advisers during the Obama administration.

“I think the hardest thing to communicate is that not every problem has a solution. Some of what needs to be done to heal our economy is to be patient,” he continued. “That’s a really hard a message for any president to deliver. They have to be seen as doing things.”

Rising food and gas prices are weighing on Americans living on fixed or modest incomes. Retail grocery prices rose 1% in October, laundry and dry-cleaning costs are up 6.9% from a year ago, and in some parts of California gasoline is being sold north of $6 a gallon. General Mills notified retailers that it plans to soon hike prices on dozens of its brands, including Cheerios, Wheaties and Annie’s, according to a report published Tuesday.

In turn, the inflation messaging coming out of the White House has focused a great deal on two big, Biden-backed bills. One of the president’s favorite counters to inflation worries is to point out that many economists say his $1.75 trillion Build Back Better bill and a separate $1 trillion infrastructure plan will make businesses and workers more productive and ease inflation pressures over the long term.

Yet while better roads, access to child care and weatherization may help reduce costs years in the future, Democrats face critical midterm elections in less than 12 months.

Inflation appeared to be a hurdle for Democrat Terry McAuliffe, who lost to Republican Glenn Youngkin in Virginia’s recent gubernatorial election.

Political strategists viewed that election as a gauge of voter attitude toward the current direction of policy with Democrats in control of the White House and Congress. The high-profile Democratic defeat in an increasingly blue Virginia is thought to have sparked compromise between party centrists and progressives on the infrastructure and anti-poverty and climate bills.

Americans’ angst about the economy, as measured by the percentage of those surveyed who mention any economic issue as the top problem facing the U.S., reached a pandemic-era high according to polling firm Gallup. (The survey polled a random sampling of 815 adults, and it had a margin of error of plus or minus 4 percentage points.)

Twenty-six percent of Americans now cite an economic concern as the nation’s top problem, while 7% say inflation, specifically, is their chief anxiety. In September, just 1% of Americans named inflation as their top worry, Gallup said. It has been more than 20 years since inflation was named as the most important problem by at least 7% of Americans.

“Moms and dads are worried, asking, ‘Will there be enough food we can afford to buy for the holidays? Will we be able to get Christmas presents to the kids on time?'” Biden said in a speech on Tuesday.

To help ease fuel costs during the holiday season, Biden announced that the U.S. and some of its allies will tap their national strategic petroleum reserves.

“The fact is we’ve faced even worst spikes before just in the last decade,” Biden said of rising gas prices. “But it doesn’t mean we should just stand by idly and wait for prices to drop on their own.”

While the Biden administration said it would put 50 million barrels of oil from government stockpiles onto global markets in the coming weeks, some analysts warned the action likely amounts at best to an attempt to pacify consumers.

Tapping the nation’s oil reserves will have a limited impact on fuel costs since “nearly 40% of the 50MM bbl release was already planned for 2022 as well as the fact that much of the oil will simply go into commercial stockpiles,” wrote Tom Essaye, founder of Sevens Report, a markets research firm.

That oil will eventually be repurchased “and later returned to the SPR, meaning the move is largely symbolic and not going to have a major impact on the actual physical markets,” he added.

Furman, who teaches economics at Harvard University, agreed. He said that drawing on the SPR falls into the “no-stone-left-unturned” category for a White House worried about the political impact of rising prices.

The current inflation, he said, is a function of broad shifts in aggregate demand and aggregate supply — beyond the influence of a one-time appeal to the SPR or any other quick fix.

A pesky characteristic of inflation is that today’s price increases are a product of what people think prices will be tomorrow. In other words, inflation expectations can, by themselves, cause inflation.

According to New York Federal Reserve Bank’s most-recent consumer survey, median inflation expectations in October increased to 5.7% for the coming year, the highest level ever recorded since the series began in 2013.

A measure of investors’ expectation for inflation over the next five years has spiked in recent months.

The difference between the yields on five-year Treasury inflation-protected securities, or TIPS, and the corresponding Treasury notes hit 3.17 on Wednesday, its highest level since at least 2003. That effectively means that investors think inflation will average about 3% over the next five years.

The recent uptick in market-based inflation expectations drew the attention of Federal Reserve officials during their November policy meeting. Their meeting minutes, released Wednesday, showed that some central bankers considered the jump as evidence that rising inflation forecasts are starting to go mainstream.

“A couple of participants pointed to increases in survey- and market-based indicators of expected inflation—including the notable rise in the five-year TIPS-based measure of inflation compensation—as possible signs that inflation expectations were becoming less well anchored,” the Fed minutes read.

“I’ve been teaching my students the model that would have helped them predict inflation this year. And that model is that, if you’re way short in demand, then extra demand can help,” he said.

“But if you try to push it too far, you run into a supply constraint,” he continued. “You’ll end up with higher prices rather than higher quantities.”

Jerome Powell, who guided the Federal Reserve and the nation’s economy through the staggering and sudden Covid-19 recession by implementing unprecedented monetary stimulus, is being nominated for a second term as chairman of the U.S. central bank.

President Joe Biden made the announcement Monday morning following weeks of speculation that a push from progressives might see Fed Governor Lael Brainard get the spot.

Acknowledging the political pressure he faced to nominate a more progressive Democrat than the Republican Powell, Biden said Monday afternoon he settled on Powell because the current economic circumstances present “enormous potential and enormous uncertainty” and require “stability and independence.”

Brainard was designated as vice chair of the board of governors; she had been widely expected to get a separate vice chair for supervision post, which oversees the nation’s banking system. As vice chair for monetary policy, she would succeed Richard Clarida, whose term expires Jan. 31, 2022, and will oversee a wider swath of policy decisions.

Read more: Who is Lael Brainard?

“As I’ve said before, we can’t just return to where we were before the pandemic, we need to build our economy back better, and I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before,” Biden said in an earlier statement.

The nominations next head to the Senate for confirmation.

In making the decision, Biden praised the Powell Fed for its “decisive” action in the early days of the pandemic.

The Fed rolled out an unprecedented array of lending programs while also cutting interest rates back to near zero and instituting a monthly bond-buying program that would increase the central bank’s holdings of Treasurys and mortgage-backed securities by more than $4 trillion.

“Chair Powell has provided steady leadership during an unprecedently challenging period, including the biggest economic downturn in modern history and attacks on the independence of the Federal Reserve,” a White House statement said. “During that time, Lael Brainard – one of our country’s leading macroeconomists – has played a key leadership role at the Federal Reserve, working with Powell to help power our country’s robust economic recovery.”

The announcement coincided with a boost to the stock market while government bond yields were higher across the board.

Markets are watching closely the pace the Fed will follow as it unwinds its massive policy support.

Officials already have indicated they will start paring back the bond purchases, with reductions of some $15 billion per month that would see the program likely conclude in late spring or early summer 2022.

Interest rate hikes are another matter.

Most Fed officials thus far have said they won’t consider raising rates at least until the bond buying taper winds down. However, markets have been looking for a faster timeline for rates, with the initial hike now priced in for June 2022.

“The president chose the status quo for monetary policy and financial regulation,” said Mark Zandi, chief economist at Moody’s Analytics. “The Fed’s going to slowly but steadily take its foot off the monetary accelerator.”

Treasury Secretary Janet Yellen, who also was Powell’s immediate predecessor at the Fed’s helm, lauded Powell for the way he handled the job in the face of the pandemic crisis, which brought the U.S. not only its steepest but also its shortest recession.

“Over the past few years, Chair Powell has provided strong leadership at the Federal Reserve to effectively meet and address unexpected economic and financial challenges, and I am pleased our economy will continue to benefit from his stewardship,” Yellen said.

Though Powell carried the day, it was not without controversy.

The Fed has been under fire lately following an ethics scandal in which multiple officials engaged in trading stocks at a time when the institution was implementing policies aimed at boosting markets. Powell disclosed that he owned municipal bonds, which the Fed also was buying, and he also bought and sold funds tied to the broad stock market indexes.

At the same time, the Fed has been hit with inflation running faster than it had anticipated – in fact, at the sharpest pace in 30 years. Official Fed policy since September 2020 has been to let inflation run somewhat hotter than the standard 2% target if it allows for full and inclusive employment, but prices have been rising well above that level.

Powell has held to the line that inflation will cool off once factors associated with the pandemic return to normal. But the recent readings have raised questions about the so-called average inflation targeting that signaled a historic turn in central bank monetary policy.

The inflation also has come with a rapid economic recovery and a decline in the unemployment rate from a pandemic peak of 14.8% to its current 4.6%.

Presented later Monday afternoon in a joint appearance with Biden, both Powell and Brainard stressed the importance of controlling inflation.

“We know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials like food, housing and transportation,” Powell said. “So we use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

Brainard added that she is “committed to putting working Americans at the center of my work at the Federal Reserve. This means getting inflation down at a time when people are focused on their jobs and how far their paychecks will go.”

Brainard emerged as a key force in the race over who would carry the Fed through the next four years. She has taken point on several issues important to the Biden administration, particularly the need for the Fed to brace the banking system against disruptive climate change events.

A former undersecretary of the Treasury during the Obama administration, Brainard also has been a strong proponent of a digital dollar as a means to open the financial system to the unbanked.

The White House statement stressed the importance of progressive for the Fed in the years to come.

Biden said that Powell and Brainard “also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system.”

“Fundamentally, if we want to continue to build on the economic success of this year we need stability and independence at the Federal Reserve – and I have full confidence after their trial by fire over the last 20 months that Chair Powell and Dr. Brainard will provide the strong leadership our country needs,” he added.

Biden still has more work to do on the Fed: There is one vacant position on the board of governors, while the Clarida vacancy will need to be filled come January. He also will need to name a vice chair for supervision, a post the departing Randal Quarles had held until his term expired in October. The White House indicated Monday that those moves will be announced in early December.

The initial congressional reaction to Monday’s news was positive.

Sen. Sherrod Brown (D-Ohio), who chairs the pivotal Senate Banking Committee that will first hear the nominations, said, “I look forward to working with Powell to stand up to Wall Street and stand up for workers, so that they share in the prosperity they create.”

Pennsylvania Republican Patrick Toomey said he will support Powell though he noted he has had disagreements with central bank policies.

The news is likely a disappointment to progressives including Sen. Elizabeth Warren, D-Mass., who said in September that the Fed’s role in relaxing banking regulations in recent years makes Powell a “dangerous man” and that she would oppose his renomination. 

Biden recently met with Warren to discuss the appointments, according to a source familiar with the matter.

Two other Democratic senators, Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon, also said they would oppose Powell.

President Donald Trump appointed Powell to the position in 2018 in somewhat of a surprise. Trump chose to pass over then-Chair Janet Yellen, an unusual move in that Fed leaders are rarely removed after just one term. Former President Barack Obama initially appointed Powell to a 14-year term as governor in 2014.

Though Trump nominated Powell, he later fired withering criticism at the Fed chief when the central bank raised interest rates seven times in 2017 and 2018. The former president went as far as to call the Fed policymakers “boneheads” for trying to normalize policy as the economy recovered.

As for Brainard, she is now widely expected to be named vice chair of supervision, a key Fed post to oversee the nation’s banking system.

The Fed is empowered by Congress to fulfill two mandates: Maximize U.S. employment and keep inflation stable. Its leaders, known as governors, are nominated by the president and vote on how to adjust interest rates, regulate the nation’s largest banks and monitor the health of the economy.

To combat the spike in unemployment and recession that began in the spring of 2020, the central bank slashed interest rates and began buying some $120 billion in Treasury bonds and mortgage-backed securities every month. It also instituted a variety of lending programs aimed at keeping fixed income markets functioning after they endured significant stress at the beginning of the pandemic.

Economists credit that quick and sizable response for stabilizing financial markets and later repressing long-term interest rates. Lower interest rates make it easier for corporations to take on loans to build new factories, or for individuals to buy homes or cars. 

“Under Powell the Fed has placed more emphasis on having the economy operate at maximum employment,” Mike Feroli, chief U.S. economist at JPMorgan, said via email.

“This is a goal progressive economists have long advocated and a goal which is presumably consistent with Biden’s agenda.”  

Treasury Secretary Janet Yellen, one of Biden’s top economic advisors and a counselor on his Fed nominations, told CNBC earlier this month that she is happy with the Fed chief’s work. Yellen was the first woman to serve as the Fed’s chair and is the country’s first female Treasury secretary. 

“I talked to him about candidates and advised him to pick somebody who is experienced and credible,” Yellen said. “I think that Chair Powell has certainly done a good job.” 

Powell is also popular on Capitol Hill, where lawmakers on both sides of the aisle have praised his leadership and amiability since he took over for Yellen in February 2018. 

Sales of previously owned homes in October rose 0.8% to a seasonally adjusted annualized rate of 6.34 million units, according to the National Association of Realtors. Sales were 5.8% lower than October 2020. October of last year was the cyclical high in the market.

This measure represents closed sales for existing single-family homes and condominiums in October, so contracts that were likely signed in August and September. The closing process can take one to two months on average.

Realtors are now predicting full-year sales of over 6 million, which would be the highest number of sales since 2006.

“Sales remain very strong and I would attribute that to continuing job additions,” said Lawrence Yun, chief economist for the Realtors.

Yun also pointed to an increase in investors in the market, likely driven by soaring rents for single-family homes. Investors made up 17% of October buyers, up from 13% in September and 14% in October of 2020. All cash buyers represented 24% of buyers. Most investors use all cash.

First-time buyers represented 29% of sales compared with 32% a year ago. Historically that share is around 40%.

The supply of existing homes for sale continued to weaken. There were 1.25 million homes available for sale at the end of October, which is 12% lower compared with a year ago. This represents a 2.4-month supply at the current sales pace. A 5 to 6-month supply is considered a balanced market between buyer and seller.

Weak supply and strong demand pushed the median price of an existing home to $353,900. That is 13.1% higher compared with October 2020.

By price category, sales of homes priced under $250,000 fell 24% year over year. Sales of homes priced between $750,000 and $1 million rose 25%. Sales of million-dollar plus homes were up 31%.

Buyers in October did not get a break from mortgage rates. They rose steadily from the start of August through September. The average rate on the popular 30-year fixed loan was 2.78% on August 3rd, according to Mortgage News Daily. By October 29th it was 3.22%. The rate as of last Friday was 3.16%.

The latest read on sales of newly built homes from September showed a 14% jump from August. Builders continue to see strong demand, due to the low supply of existing homes for sale. Some of the largest national builders, however, have said they are slowing sales due to supply chain and labor issues. They are concerned they might not be able to deliver the homes on time.

First-time claims for unemployment insurance were little changed over the past week, indicating the heightened pace of layoffs during the pandemic may have hit a plateau, the Labor Department reported Thursday.

Initial filings for the week ended Nov. 13, totaled 268,000, a decline of 1,000 from a week ago and slightly higher than the Dow Jones estimate for 260,000.

The total was the lowest since the beginning of the pandemic but in close keeping with where claims have been over the past month.

The four-week moving average, which smooths out weekly volatility, declined to 272,750, just a bit above the total for the most recent weekly count.

Continuing claims, which run a week behind the headline number, declined by 129,000 to 2.08 million, also a pandemic-era low dating back to March 14, 2020.

Though the totals for regular and continuing claims showed declines, trailing numbers for those receiving benefits under all programs increased sharply for data through Oct. 30. That total rose by 618,804 to 3.185 million.

Special pandemic-related emergency programs ended in most places in September, but the total for the Pandemic Unemployment Assistance program in particular soared from the Oct. 23 to Oct. 30, rising 537,467.

The Labor Department did not provide an explanation for the big surge in pandemic-related filings.

A separate report Thursday brought some strong news for manufacturing and more signs of inflation.

The Philadelphia Federal Reserve’s gauge of monthly activity in the sector jumped 15 points to 39, representing the percentage differential between companies reporting expansion and contraction. That was well above the Dow Jones estimate for 23, propelled by increases in employment and prices paid and received.

Rising mortgage interest rates continue to take their toll on demand, especially in the refinance market. Total mortgage application volume fell 2.8% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.20% from 3.16%, with points rising to 0.43 from 0.34 (including the origination fee) for loans with a 20% down payment.

As a result, refinance demand fell 5% for the week and was 31% lower than the same week one year ago. Refinance applications have dropped in seven of the past eight weeks. The refinance share of mortgage activity decreased to 62.9% of total applications from 63.5% the previous week.

“Activity has been particularly sensitive to rate movements, and last week’s decline was driven by a drop in conventional and FHA refinance applications, which offset an increase in VA refinance applications.” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Mortgage applications to purchase a home, which are less sensitive to weekly rate moves, rose 2% for the week but were 6% lower than the same week one year ago. Buyers appear to be coming back to the market after a brief lull. Builders reported strong buyer traffic in a sentiment report out this week from the National Association of Home Builders.

“Purchase applications increased for both conventional and government loan segments, as housing demand continues to show resiliency at a time – late fall – when home buying activity typically slows. The second straight increase in purchase applications suggests that stronger sales activity may continue in the weeks to come,” said Kan.

Mortgage rates continued to move higher to start this week and are now at the highest level in more than three weeks. Rates were influenced Tuesday by a report on October’s retail sales, which rose by 1.7%, making it the strongest month in several years. 

“In general, strong economic data puts upward pressure on rates. Economists were only expecting a 1.4% increase after last month’s 0.8% improvement,” said Matthew Graham, chief operating officer at Mortgage News Daily.

A breakdown of the latest U.S. data indicates that inflation is confined to certain sectors and will not pose a threat to the recovery, according to Carl Weinberg, chief economist at High Frequency Economics.

U.S. CPI inflation came in at an annual 6.2% in October, its steepest climb for more than 30 years.

Energy, shelter and vehicle costs led the gains, which more than wiped out the wage increases that workers received for the month.

The persistent high inflation and continuation of pressures such as supply chain bottlenecks have led many economists to question the Federal Reserve’s long-held view that the spike will be “transitory.”

However, stronger-than-expected October retail sales and industrial production figures this week have indicated that the broader economic recovery may well be on track, even as inflation drives prices skyward.

Weinberg told CNBC’s “Squawk Box Europe” on Wednesday that with industrial output and GDP back to pre-pandemic levels, the U.S. economy has essentially recovered. He argued that the labor market lagging is “typical for economic recessions,” with unemployment following the 2008 global financial crisis taking around a decade to fully recover.

That said, November’s jobs report indicated that the labor market was now gathering steam, with nonfarm payrolls increasing by 531,000 in October and driving the unemployment rate down to 4.6%.

“We have a problem related to specific sectors of the economy, not the economy overall. I was surprised to read those industrial production and manufacturing numbers, but they are what they are, and we are doing it now with 5 million fewer people working than before the pandemic, so this tells us that productivity ought to be up by maybe 3% or more compared to then,” Weinberg said.

He suggested that the market needs to keep productivity gains in mind when looking at wage increases, which are “tolerable with steady, stable prices as long as they are offset by productivity gains.”

Citing High Frequency Economics’ aggregation of data across the component sectors within the CPI reading, Weinberg estimated that around one third are falling while half are growing at less than 2%, which he argued “is not inflation.”

“The rise of selected categories, scattered categories of products within CPIs are making those averages of the basket price move higher, but that doesn’t mean that all prices are moving higher along with all wages,” Weinberg said.

“Inflation is a process of spiraling wages and prices, it is not a one-time event, an off-time shock to prices coming from an understandable supply shock.”

Ignore ‘hysterical people’

Weinberg cited Milton Friedman to make the case that Fed intervention based on these individual pockets of spiking inflation would likely do “more harm than good.” He also highlighted comments from Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey, both of whom have suggested that tightening policy in response to inflation resulting from temporary supply shocks would be counterproductive.

“Let’s not be influenced by hysterical people like Larry Summers, who are telling us that inflation is taking off. Let’s listen to what the people who actually are making policy are telling us,” Weinberg said.

Summers was contacted for comment by CNBC. The former U.S. Treasury secretary has in recent weeks called on the Fed and the Biden administration to tackle rising inflation, and argued that the “transitory” label had run its course.

Despite having long advocated for more expansionary fiscal and monetary policy, Summers, now president emeritus of Harvard University, said in a Washington Post op-ed earlier this week that he had changed his view in the face of the evidence. He also challenged the notion that inflation was confined to just a few sectors.

“In October, prices for commodity goods outside of food and energy rose at more than a 12 percent annual rate,” Summers said.

“Various Federal Reserve system indexes that exclude sectors with extreme price movements are now at record highs.”

U.S. shoppers accelerated their level of spending in October even as the prices of goods jumped at their fastest pace since the 1990s, the Commerce Department reported Tuesday.

Retail sales, a measure of how much consumers spent on goods ranging across categories from autos to sporting goods and food and gas, increased 1.7% for October, compared with 0.8% the previous month.

Excluding autos, sales also increased 1.7%, according to the Census Bureau advance estimate.

The two numbers were above the Dow Jones estimates of 1.5% for the headline print and 1% for the core sales gain.

Online shopping posted the biggest relative gain for the month, rising 4% and good for a 10.2% gain from a year ago. Soaring prices at the pump pushed gasoline sales up 3.9% in October. Year over year, sales increases at stations have surged 46.8%.

The news comes after the consumer price index, measuring a similar basket of goods, increased 0.9% for October and 6.2% year over year. That year-over-year gain was the strongest since 1991. Even excluding food and energy, the CPI was up 0.6% from the previous month and 4.6% year over year.

However, the retail sales numbers — which are adjusted for seasonal variations but not for inflation — indicate consumers are willing to pay the higher prices, despite a recent indication that sentiment is at its lowest level in 10 years.

“So much for soft consumer confidence signaling slower growth; what people do is much more important than what they say,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

U.S. households have been flush with cash, thanks to a series of payments Congress approved to combat the Covid pandemic crisis. The spending has totaled more than $5 trillion and included transfer payments in the form of direct checks to millions of Americans, as well as enhanced unemployment benefits, most of which expired in September.

Savings totaled $1.6 trillion in the third quarter, well off the pandemic peak but still at a high level. However, worries over inflation have been creeping up in sentiment surveys.

Spending has remained brisk, however, with debt and credit card outlays up 27% on a two-year basis, according to Bank of America.

Overall, sales are up 16.3% on a year-over-year basis.

Electronics and appliances also rose substantially, up 3.8% for the month, while miscellaneous retailers and building material centers each rose 2.8% and motor vehicles and parts dealers saw a 1.8% increase.

However, sales at restaurants and bars were flat for the month despite rising 29.3% year over year, and clothing stores fell 0.7% but were still up 25.8% from the same point in 2020.

A separate report Tuesday from the Labor Department showed that import prices rose 1.2% in October, ahead of the 1% Dow Jones estimate and the fastest increase since May. That was well ahead of the 0.4% increase in September.

Also, industrial production rose 1.6% in October, ahead of the 1% estimate and a rebound from the 1.3% decline in September. And capacity utilization rose to 76.4%, its highest level since December 2019.

Correction: Excluding autos, sales also increased 1.7%, according to the Census Bureau advance estimate. An earlier version misstated the percentage.

Higher prices and longer wait times do not appear to be turning buyers away from the nation’s homebuilders. With demand still surging, homebuilder confidence in the market for single-family homes rose more than expected in November, to the highest level since last May. 

Confidence rose 3 points to 83 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Anything above 50 is considered positive. Analyst expectations had been for it to remain unchanged at 80. Sentiment stood at 90 in November 2020.

“The solid market for home building continued in November despite ongoing supply-side challenges,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida. “Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.”

Of the index’s three components, current sales conditions rose 3 points to 89. Buyer traffic also increased 3 points to 68. Sales expectations in the next six months were unchanged at 84. 

While buyers are plentiful, most of the components that go into building a home are not. That has led some builders, like the nation’s largest, DR Horton, to slow sales in order to make sure they can deliver on time.

Company Chairman, Donald Horton, noted in the company’s most recent quarterly earnings release, “We continued intentionally restricting our home sales pace by selling homes later in the construction cycle to align with our production levels and better ensure the certainty of home close dates for our homebuyers.” 

Not only are builders still experiencing supply chain disruptions and a massive labor shortage, they also can’t find enough land on which to build.  

“Lot availability is at multi-decade lows and the construction industry currently has more than 330,000 open positions,” said NAHB Chief Economist Robert Dietz, who called on policymakers to focus on resolving these issues.

Regionally, on a 3-month moving average for HMI scores, sentiment in both the Midwest and South rose 4 points to 72 and 84 respectively. In the West it rose one point to 84 and in the Northeast fell two points to 70.