Inflation hits four-decade high, consumer prices soar 7 percent
Inflation has soared to its highest in four decades, with consumer prices jumping by 7 percent for the year ending in December, the feds said Wednesday.
The surge was the highest annual increase since June 1982 for the Consumer Price Index, a key inflation gauge that tracks the costs of goods and services including used car sales, groceries and rent, according to data released by the Bureau of Labor Statistics. On a monthly basis, consumer prices rose 0.5 percent in December.
“Increases in the indexes for shelter and for used cars and trucks were the largest contributors to the seasonally adjusted all items increase,” the BLS said in a release.
Inflation has exceeded 6 percent for three consecutive months.
Excluding food and gas, the index rose 0.6 percent in December and 5.5 percent over the last 12 months. Food prices rose 0.5 percent for the month and 6.3 percent year-over-year. The energy index declined 0.4 percent but rose more than 29 percent over the last year.
Shelter costs rose 0.4 percent in December and 4.1 percent over 12 months. Used vehicle prices surged 3.5 percent for the month and are up more than 37 percent year over year.
Inflation has surged in recent months as the reopening US economy struggles to meet rising demand during the COVID-19 pandemic. Supply chain bottlenecks, shortages of key products and a tight labor market have contributed to higher costs for consumers.
The highly contagious Omicron variant is driving a record surge in COVID-19 infections, which could exacerbate economic gridlock in the weeks to come.
President Biden downplayed the decades-high surge, arguing in a statement that the latest Consumer Price Index data showed his administration is “making progress in slowing the rate of price increases.” The president noted gas and food prices declined for the month.
“At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets,” Biden added.
While the cost of gas has declined since a peak of $3.42 per gallon in November, some analysts warn it could exceed $4 in the worst-case scenario for the months ahead.
Nearly half of US households said price increases have resulted in some degree of financial hardship, according to a Gallup poll published last month.
The increase in costs for goods and services has effectively erased wage gains despite favorable hiring conditions for American workers. Employers posted 10.6 million job openings in November and the unemployment rate is currently 3.9 percent, close to what the Federal Reserve considers full employment.
In a separate release, the BLS said real average hourly earnings for all US employees were down 2.4 percent in December compared to the same month one year earlier.
The latest inflation numbers drew critical reactions from GOP lawmakers who argue that Biden administration’s policies have made the problem worse.
“This crushing report shows Democrats’ spending has pushed Bideninflation to achieve the highest prices in 40 years, killing family budgets and wiping out three years of wage gains,” Rep. Kevin Brady, ranking GOP member of the House Ways and Means Committee.
“No one is buying Democrats’ excuses: The American people are suffering as they watch this administration refuse to lift a finger to help them out of this crisis,” Brady added.
“This trend isn’t ‘transitory,’ and it’s all happening under Democrats’ one-party control,” House Minority Leader Kevin McCarthy (R-Calif.) tweeted.
The supply chain disruptions have resulted in instances of empty shelves at grocery stores, as well as shortages of some foods and staples such as cold medicine. Local media outlets from Oregon to Tennessee to Florida have reported on customers struggling to find goods in recent days.
This week, Albertsons CEO Vivek Sankaran said the grocery chain has had difficulty keeping some products in stock amid lingering “supply challenges.” Deutsche Bank analysts say the “supply pressures” could last well into next year.
The National Grocers Association noted the Omicron variant has further complicated matters by impacting staffing levels at many stores.
“While there is plenty of food in the supply chain, we anticipate consumers will continue to experience sporadic disruptions in certain product categories as we have seen over the past year and a half due to the ongoing supply and labor challenges,” a spokesman for the trade group told the Washington Post.
The shortages have given rise to backlash against the Biden administration in recent months, with hashtags such as #BareShelvesBiden trending on social media.
In December, Biden downplayed concerns about the supply chain.
“The much-predicted crisis didn’t occur,” Biden said at the time. “Packages are moving. Gifts are being delivered. Shelves are not empty.”
The latest inflation data will put additional pressure on officials at the Fed and the White House, who have faced criticism over their handling of inflation. The central bank is expected to raise interest rates at least three times this year.
“When the annual rate of inflation begins with a 7, there is immense pressure on the Federal Reserve to get it under control, supply chain issues notwithstanding,” BankRate chief financial analyst Greg McBride said. “Both interest rate hikes and not only stopping bond purchases but shrinking their balance sheet altogether are in the cards, and are likely to begin as soon as March.”
Fed Chair Jerome Powell, who is seeking confirmation for another four-year term, told Senate lawmakers that inflation is a “severe threat” to the economy.
Powell noted that supply chain bottlenecks have cleared less quickly than the Fed anticipated when it initially referred to inflation as “transitory.” Aside from rate hikes, the Fed is eyeing a runoff of its bond holdings.
“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Powell added. “We will use our tools to get inflation back.”
Powell said he expects inflationary pressures to continue well into next year.
Meanwhile, Biden has called for increased scrutiny of major corporations in the meat and energy industries in recent months, arguing corporate greed has contributed to rising costs for Americans.
Biden pushed back on Republican criticism of his approach during a speech last week, calling the suggestion that he was not focused on inflation “malarkey.”
Concerns over inflation have imperiled Biden’s social spending bill, with Republicans – and some Democrats – warning more government spending will only hurt the economy further.
The latest Consumer Price Index data matched expectations. Economists expected inflation to rise 0.4 percent in December and 7 percent year-over-year, according to Dow Jones.
