- Inflation hit a new 39-year high in December.
- The consumer price index rose 7% last year, the fastest pace since 1982.
- Before volatile food and energy items, prices were up 5.5% in 2021.
Another month, another record jump in prices.
Inflation hit a new 39-year high in December as a drop in energy costs was not enough to offset a steady rise in staples like food, rent and cars amid stubborn supply chain bottlenecks and worker shortages.
The consumer price index rose 7% last year, the fastest pace since 1982, the Labor Department said Wednesday. That’s a 6.8% year-over-year increase in November, which was also a nearly four-decade high.
The fast-spreading omicron variant of COVID likely intensified price increases by causing more worker absences from global delivery networks and slowing shipments, says Wells Fargo economist Sam Bullard. That more than erased any relaxation in demand and prices in COVID-sensitive industries like travel, says Bullard.
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Empty shelves? Grocery stores still have empty shelves amid supply chain disruptions, omicron and winter storms
Excluding volatile food and energy items, so-called underlying prices rose 5.5% in 2021, a new 30-year high. On a monthly basis, general consumer prices increased 0.5% in December, while underlying prices advanced 0.6%.
Headline inflation may decline soon
Economists expect headline inflation to decline in the coming months as gasoline and other energy prices continue to decline and crude oil prices fall. But core inflation is expected to rise before declining as supply problems are fixed.
“Buckle up,” says economist Leslie Preston of TD Economics. “After hitting new highs, core inflation is likely to rise further in the first quarter of 2022 year-on-year.”
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Gas prices drop
Last month, energy prices fell for the first time in six months, falling 0.4%, while gasoline prices fell 0.5%. That sent pump prices up 49.6% last year.
But other costs continued to rise. Hotel rates increased 23.9% annually. The prices of used cars and trucks increased 3.5% monthly and 37.3% in the year. Prices increased 11.8% annually for new cars, 7.4% for household items, 5.8% for clothing and 6.3% for groceries.
Chicken and fish prices rose 10.4% and 8.4%, respectively, over the past year following further monthly gains. Beef was up 13% and pork was up 15.1%, despite declines last month.
Food prices go up, the shelves are empty
Additional increases in food prices may be ahead with reports of empty shelves in the Northeast as a result of omicron-related worker absences and winter storm disruptions, says Capital Economics economist Paul Ashworth.
The pandemic has been behind stomach-churning inflation.
Consumers who were already buying goods like televisions and appliances while trapped at home during the health crisis began dining out and traveling more. Many were ready to splurge after amassing more than $ 2.5 trillion in additional savings from federal stimulus checks and improved unemployment benefits, as well as cutting back during closings.
Supply chain problems affect the CPI
But a supply network still hampered by the pandemic was unprepared for compulsive shopping. Many factories abroad are operating at partial capacity. Shipping containers are in short supply. And many truck drivers and warehouse workers still care for children at home or fear COVID.
The rare collision of robust demand and tight supplies has led to widespread product shortages and higher prices that are outpacing solid wage increases for low- and middle-income Americans.
The Fed prepares to raise interest rates
At his confirmation hearing for a second term on Wednesday, Federal Reserve Chairman Jerome Powell told lawmakers that the central bank is prepared to raise interest rates faster than anticipated to contain inflation. The Fed has already accelerated the phasing out of its bond-buying stimulus, a move that would clear the way for interest rate hikes starting in March.
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George is Digismak’s reported cum editor with 13 years of experience in Journalism