Consumer prices rose at the fastest pace in 30 years in September while workers saw their biggest compensation boosts in at least 20 years, according to new government data released Friday.
Consumer spending also rose in September despite the expiration of enhanced unemployment benefits, the data showed.
The reports point to a recovery caught between robust consumer demand and severe supply shortages, leading to a rapid uptick in inflation. They also put pressure on Federal Reserve officials as they prepare to meet next week.
Persistently high inflation could offset the increase in wages and make households worse off.
It could also force the central bank to raise interest rates to keep prices in check. Such a move also risks slowing the economic recovery when the unemployment rate remains higher than it was before the pandemic.
Officials say they expect the recent burst of inflation will be temporary, but they have also raised the possibility they could pull back support for the economy faster than anticipated.
“This is a really rough ride for the next few months,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The Fed’s preferred inflation gauge, the personal-consumption-expenditures price index, rose 4.4% in September from the previous year, the fastest pace since 1991, the Commerce Department said Friday. The index was up 0.3% in September from the previous month.
Excluding food and energy categories, which tend to be more volatile, the index rose 0.2% over the month and 3.6% over the year.
The employment-cost index, a measure of worker compensation that includes both wages and benefits, rose 1.3% in the third quarter from the second, the fastest pace since at least 2001, the Labor Department reported.
Workers in the leisure, hospitality and retail sectors saw particularly high compensation boosts, as employers struggled to fill open positions.
An index of consumer sentiment also released Friday by the University of Michigan showed Americans remain in a glum mood. The index fell to 71.7 in October from 72.8 in September. It remains well below the level of 101 registered in February 2020, before the pandemic hit.
Consumers in October also anticipated the highest year-ahead inflation rate since 2008 at 4.8%, according to the sentiment survey. Higher consumer inflation expectations are a concern for policy makers because they could prompt firms and workers to raise prices and salary demands in the future, making the expectations self-fulfilling.