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A person shops in the meat section of a grocery store in Los Angeles, Calif., on Nov. 11.Mario Tama/Getty Images

U.S. consumer prices rose further in November amid strong gains in the cost of food and a range of other goods, leading to the largest annual increase in more than 39 years and potentially giving the Federal Reserve ammunition to quickly wind down its bond purchases.

The report from the U.S. Labor Department on Friday followed on the heels of a slew of data this month showing a rapidly tightening labour market. With supply bottlenecks showing little sign of easing and companies raising wages as they compete for scarce workers, high inflation could persist well into 2022.

The increased cost of living, the result of shortages caused by the relentless COVID-19 pandemic, is hurting President Joe Biden’s approval rating. High inflation and a strengthening economy have raised the risk of an early Fed interest rate increase.

“The biggest problem for the Fed is the mounting evidence of a strong pickup in cyclical price pressures,” chief economist at Capital Economics in Toronto Paul Ashworth said.

“Although we think headline inflation has now peaked, it will decline only gradually over the first half of next year and, crucially, because of that building cyclical pressure we expect core inflation to remain above the Fed’s target for a prolonged period.”

The consumer price index rose 0.8 per cent last month after surging 0.9 per cent in October. The broad-based increase was led by gasoline prices, which rose 6.1 per cent, matching October’s gain. With crude oil prices declining recently, gasoline prices have likely peaked.

Food prices rose 0.7 per cent. The cost of food at home increased 0.8 per cent, driven by increases in the price of fruits and vegetables, meat and cereals and bakery products. It also cost more to eat away from home.

In the 12 months through November, the CPI accelerated 6.8 per cent. That was the biggest year-on-year rise since June 1982 and followed a 6.2 per cent advance in October.

Economists polled by Reuters had forecast that the CPI would climb 0.7 per cent and increase 6.8 per cent on a year-on-year basis.

The U.S. government reported last week that the unemployment rate fell to a 21-month low of 4.2 per cent in November. Tightening labour market conditions were underscored by a report on Thursday showing new applications for unemployment benefits dropped to the lowest level in more than 52 years last week.

Other data this week showed there were 11 million job openings at the end of October and Americans quit jobs at near-record rates.

“With supply shortages likely to stick around until next year and service-sector prices trending higher, inflation is going to get worse before it gets better,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Fed Chair Jerome Powell has said the U.S. central bank should consider speeding up the winding down of its monthly bond purchases at its policy meeting next week. Many economists are expecting an early Fed interest rate increase.

Excluding the volatile food and energy components, the CPI rose 0.5 per cent last month after gaining 0.6 per cent in October. The so-called core CPI was supported by rents, with owners’ equivalent rent of primary residence, which is what a homeowner would receive from renting a home, rising a solid 0.4 per cent.

Prices for used cars and trucks increased 2.5 per cent for a second straight month. New motor vehicle prices rose 1.1 per cent, marking the eighth consecutive month of gains. A global semiconductor shortage has undercut motor vehicle production.

Airline fares rebounded 4.7 per cent. But further increases are unlikely following the emergence of the Omicron variant of COVID-19, which could make some people hesitant to travel by air. The United States is already experiencing a resurgence in coronavirus infections, driven by the Delta variant.

The so-called core CPI jumped 4.9 per cent on a year-on-year basis, the largest rise since June 1991, after increasing 4.6 per cent in the 12 months through October.

The Fed tracks the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, for its flexible 2 per cent inflation target. The core PCE price index surged 4.1 per cent in the 12 months through October, the most since January 1991. Data for November will be released later this month.

“A continued trend higher in core inflation creates further hawkish risks for a Fed that has recently become more focused on the inflation side of its mandate, and suggests a rising likelihood of an even earlier first rate hike,” said Veronica Clark, an economist at Citigroup in New York.

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