The annual rate of U.S. consumer price growth once again reached the highest level in almost 40 years in the last month of 2021. The Labor Department’s highly anticipated report showed the consumer price index (CPI), an inflation gauge that measures costs across dozens of goods, rose 7% in December from 6.8% in November, showing the biggest yearly jump since June of 1982.
Core consumer prices, which exclude food and energy prices, increased 5.5% year over year in December compared to the 4.9% spike in November. For core inflation, it was the largest annual growth since February 1991.
The rise in the CPI was driven by higher prices for shelter, used cars and trucks and food. On the other hand, energy prices, which were a key driver of inflation through most of 2021, decreased last month. But the decrease is unlikely to last into 2022.
The news represents a blow to the Biden administration and the Federal Reserve’s officials who largely attribute rising inflation pressures to Covid-specific issues.
Inflation is well above the central bank’s flexible 2% target.
“This report underscores that we still have more work to do, with price increases still too high and squeezing family budgets,” Biden said in a statement.
Inflationary pressures are likely to last well into the middle of 2022 and Fed Chair Powell at his confirmation hearing Tuesday before the Senate banking panel said that if inflation will persist at high levels longer than expected and they have to raise interest rates more over time, they will.
“The Fed now sees it as its top priority to ensure that inflation moderates back towards the long-run 2% inflation target in order to promote a long-lasting economic expansion that brings about maximum employment over time,” said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics.
“We remain of the view that inflation – though still unquestionably very hot – is close to peaking. We expect headline inflation to remain at 7% in January and begin to decline thereafter” said Jefferies (JEF) chief economist Aneta Markowska in a note to clients.
“We now see the Fed raising rates in March and on course for four rate hikes in total in 2022,” she added.
“Fears about higher and persistent inflation have been well telegraphed in recent months. Therefore, investors had been expecting the rate of inflation to rise. Today’s rise in the rate of inflation falls within investors’ expectations,” Richard Flynn, managing director at Charles Schwab UK, said in a note.
Stocks on Wall Street were trading higher as traders seem relieved the inflation acceleration was not more significant.
7% bullish because it wasn't 8%.
— Sven Henrich (@NorthmanTrader) January 12, 2022