US prices up 5.4% in September over a year ago as COVID holds back economic recovery

WASHINGTON - Prices rose 5.4% in September compared with a year ago, as the delta variant of the coronavirus continues to hamper supply chains, the job market and the Federal Reserve’s own expectations for the economy.

Data released Wednesday by the Bureau of Labor Statistics showed that prices rose 0.4% in September compared with August.

Economic data from September underscored how susceptible the economic recovery remains to the pandemic - and how policymakers underestimated the threat posed by delta when the surge began a few months ago. On the labor front, the economy gained only 194,000 jobs last month, and officials said ongoing concerns about child care, and fear of the virus, kept people from returning to work.

On the inflation side, Fed leaders have long said that price increases are a “transitory,” or temporary, feature of an economy battered by the pandemic. Their message is that as supply chains clear up, inflation will settle back down closer to the Fed’s 2% annual target, sometime next year.

Yet, that timeline has been complicated by the delta variant and the uncertainty it brings for global supply chains. For example, in a recent speech, Fed governor Lael Brainard pointed to builders who can’t get enough construction materials and to North American auto production, which was paused by shutdowns in Malaysia and Vietnam.

The Fed’s take that inflation is temporary has left the American public asking how much longer it will take for gas or grocery prices to simmer down. On Tuesday, Atlanta Fed President Raphael Bostic said the word “transitory” had become a “swear word” to his staff. That’s in part because the public has a different understanding of transitory inflation from economists, who aren’t necessarily referring to a fixed period of time, but rather expect that inflation will eventually pass through the economy, and is tied more specifically to the pandemic.

Another worry is that as people face higher prices at the checkout counter, or as businesses weigh the costs of getting supplies and materials on time, consumers may change their spending habits before they believe the price tag will sting even worse. That cycle of behavior only pushes prices higher, making those very inflation expectations self-fulfilling. Fed leaders say that’s not what they’re seeing yet, and that they would change policy if any signs started to bubble up.

Meanwhile, the economic hurdles come as the Fed navigates a host of other challenges. Stock trading by top Fed officials jeopardized the central bank’s public trust and, ultimately, spurred a probe by the Fed’s inspector general over whether the behavior violated both ethics rules and the law.

Plus, looming over the Fed are a series of leadership questions, including whom the Biden administration will tap for chair. Wednesday marked the final day of Randal Quarles’s term as vice chair for supervision - essentially the Fed’s top banking cop. No replacement has been nominated.