The Federal Reserve’s preferred inflation gauge accelerated in August, keeping the pressure on economic policymakers who are watching warily as supply chain issues and commodity costs threaten to keep price gains elevated for longer than they had expected.
The Personal Consumption Expenditures index continued to climb at its fastest pace since 1991, rising by 4.3 percent in the year through August. That beat out the prior month’s reading of 4.2 percent.
The monthly index also remained elevated, climbing by 0.4 percent for a second straight month.
Inflation has surged thanks to pandemic-related problems, including shipping trouble as strong demand for goods from Asia and elsewhere has taxed freight routes and pushed transit costs higher. Shortages in key parts have pushed up prices for everything from cars to washing machines. Officials at the Fed and in the White House have been clear that they expect those pressures to fade as the economy more fully reopens and business returns to normal.
A separate inflation index that is released earlier, the Consumer Price Index, did show some early signs of moderation in August, though it remained elevated, at 5.3 percent.
But the fresh data comes as economists regard the horizon with apprehension. Factory shutdowns in Asia continue to ripple through the global supply chain. Commodity costs, including those for oil and gas, are rising. Rents are rebounding at a breakneck pace after a pandemic swoon, threatening to push housing inflation — an important part of the overall price index — higher.
Officials at the Fed are watching those trends as they consider when — and how quickly — to remove the economic support that the central bank has been providing during the pandemic.
While they say that they still expect inflation to fade, they acknowledge that the process is taking longer than they had expected or hoped.
It is “frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse,” Jerome H. Powell, the Fed’s chair, said while speaking on a panel on Wednesday. “We see that continuing into next year, probably, and holding inflation up longer than we had thought.”
Inflation and supply issues also pose a headache for President Biden’s White House, as rising costs chip away at voters’ paychecks and as houses and cars prove sharply more expensive and difficult to buy.
Container ships waiting at sea to dock at the Los Angeles Port this week.Credit…Etienne Laurent/EPA, via Shutterstock
Republicans have blamed the jump in prices on government spending. The acceleration has come in part because supply has not been able to adjust rapidly enough to meet the demand that huge amounts of pandemic-era stimulus helped to unleash.
They’re also invoking inflation to bludgeon the administration’s plans for additional outlays.
Bryan Steil, a Republican representative from Wisconsin, quizzed Treasury Secretary Janet L. Yellen about how spending and the debt path might affect inflation going forward during a hearing on Thursday. He also asked Mr. Powell, who was testifying alongside Ms. Yellen, for the Fed’s plan for dealing with rapid price gains.
“Regardless of what the White House press team says, I think people are really seeing the impact of higher prices, day in, day out,” Mr. Steil said, later suggesting that “runaway spending” in Washington would increase consumer inflation expectations.
The Fed aims for 2 percent inflation on average over time; under a policy framework it adopted last year, it can tolerate periods of higher prices as long as they are not expected to last. Officials are watching the current jump in prices to make sure that they moderate as expected.
So far, longer-term consumer and market inflation expectations have remained tame, suggesting that people still do expect price gains to slow with time. Fed officials hope that will keep price inflation under wraps in the longer term.
But policymakers are positioning themselves for a different reality. The central bank has clearly signaled that it could announce a plan to dial back its big bond-buying program as soon as November, the first step in removing monetary policy support for the economy.
Some Fed officials have pointed out that bringing the bond-buying program to a close could leave the central bank more nimble, should it find that it needs to raise interest rates to control inflation next year.
Companies are also planning for the possibility that price pressures and supply chain disruptions will persist.
“We’re not expecting supply chain pressures to ease,” Mark J. Tritton, chief executive officer at Bed Bath & Beyond, said during an earnings call on Friday. He noted that the company is trying to adjust how it operates to deal with the issues, including by trying to carefully manage inventory.