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Larry Edelman

Inflation looks like it’s here to stay for a while

Container ships were moored off the Los Angeles and Long Beach ports in Long Beach, Calif.
Container ships were moored off the Los Angeles and Long Beach ports in Long Beach, Calif.Tim Rue/Bloomberg

Inflation is back, and like a boorish party guest, it’s going to stick around longer than we’d like.

Consumer prices rose 5.4 percent in September from a year earlier, the Labor Department said on Wednesday, the biggest year-over-year gain in the inflation measure since July 2008. The rise in prices boosts chances that the Federal Reserve will move soon to tighten credit — pulling away the punchbowl, to use an old expression for the central bank’s mandate to keep prices under control.

Behind the price spikes were higher costs for food, energy, and housing — necessities that aren’t easy to cut back on and aren’t expected to get cheaper any time soon. Even stripping out food and energy, which are more volatile than other goods and services in the index, prices were up a hefty 4 percent from September 2020.

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The higher rate of inflation for the past year will translate to a 5.9 percent bump in Social Security benefits, the Social Security Administration said on Wednesday, the largest increase in 39 years.

It’s no surprise that inflation is running hot as the economy recovers from the pandemic. Economists warned that prices would climb quickly as consumers, flush with government stimulus dollars, ramped up spending; businesses passed along the cost of higher wages needed attract workers; and COVID-induced disruptions to distribution networks left many products in short supply, causing price increases.

But forecasters are now saying that prices will remain elevated much longer than they previously predicted — likely through most of 2022 — rather than retreating by the end of this year as they thought a few months ago.

“Supply chain bottlenecks have proved more troublesome and persistent than expected, and not just here but globally,” said Ken Matheny, executive director of US economics at IHS Markit.

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President Biden on Wednesday sought to address those bottlenecks — and quiet Republican gibes of “Bidenflation” that could weigh on his political fortunes, and those of congressional Democrats.

After weeks of negotiations, Biden said the Port of Los Angeles would start running around-the-clock, seven days a week to ease a backlog of cargo ships waiting to unload goods, joining 24/7 operations already happening at the adjoining Port of Long Beach. Those ports together handle 40 percent of shipping containers arriving in the United States.

“Today’s announcement has the potential to be a game changer,” Biden said at the White House.

He also announced commitments from Walmart, FedEx, and UPS to ramp up their operations to move more goods at night, and called for other companies to do the same.

Biden set up a Supply Chain Disruptions Task Force in June to address distribution issues and promised on Wednesday to provide federal support if needed to resolve supply chain problems. He also pitched the need for Congress to pass a pending $1 trillion bipartisan infrastructure bill, which includes major investments in port improvements.

Even if the Biden effort is successful, it will take time for the delivery of goods to accelerate to prepandemic speeds. And as long as COVID-19 delays production and shipping in key exporting countries such as China and Vietnam, product shortages will persist.

That’s frustrating business people such as April Gabriel, owner of Boston General Store in Dedham, who has been forced to order goods two months ahead of schedule just to make sure she has products to sell.

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“I just had to take out a little bit more of a loan to get inventory and stock up earlier than I normally do,” she said.

At the same time, she’s struggling to find workers: “Hiring has been really hard. We had to raise wages for most of our positions. A lot more,” Gabriel said.

Boston General Store and many businesses are increasing prices to offset higher employment and product costs, and that’s taking a painful bite out of household budgets. Consider these year-over-year price hikes in September: gasoline, up 42 percent; used cars up, up 24 percent; and meat, poultry, fish, and eggs, up 10.5 percent.

The residential home market has been sizzling since the pandemic hit, but now rents are rising as well. Analysts said housing expenses, which accounted for more than 30 percent of last month’s CPI increases, were less likely to retreat quickly than the price of eggs or gas, which now averages $3.29 a gallon.

Inflation hasn’t run consistently above 4 percent since 1990. The bigger worry had been deflation, a cycle of declining prices and wages that usually goes hand in hand with an economic downturn. Until recently, the Federal Reserve had lamented its struggle to get inflation up to its long-term target of 2 percent.

But with inflation likely lingering longer than first thought, the Federal Reserve may soon begin withdrawing some of the monetary support it unleashed during the pandemic. Fed watchers say it’s possible the central bank will begin reducing its purchases of government bonds and mortgage securities — which it had use to keep money flowing into the economy — as soon as next month, and could end them entirely by March.

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Rising interest rates and mounting inflation are things that keep investors up at night. But Wall Street didn’t freak out over the inflation report. After an initial decline, stocks ended Wednesday’s trading little changed. The yield on the 10-year Treasury note, a benchmark for interest rates, actually fell slightly.

The lack of immediate concern reflects optimism that inflation will not spiral out of control, said Mark Zandi, chief economist at Moody’s Analytics.

Expectations for inflation in the future remain at reasonable levels. That’s important, because when consumers and businesses anticipate higher inflation they take steps that exacerbate the situation. Businesses react by raising prices on their products and services, and workers then seek higher wages. Thus can begin an inflationary cycle that can be hard to stop without painful increases in interest rates like we saw back in the early 1980s, after President Gerald Ford’s “Whip inflation now” campaign failed.

“Today’s decline in long-term rates suggests that investors remain sanguine regarding the outlook for inflation,” Zandi said. “I would keep those WIN buttons in the attic.”

Jim Puzzanghera of the Globe staff and Globe correspondent Angela Yang contributed to this report.


Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.