Inflation Surveillance: US Consumer Prices Rise Highest Since 1982 | Business and Economic News

Consumers in the U.S. can be forgiven for feeling stuck in an unpleasant time, as recent government data show that inflation has risen at the fastest rate in 40 years in the last month.

The Consumer Price Index (CPI), which measures price changes in a basket of goods and services, rose 7% in December from the same period last year, the U.S. Department of Labor said on Wednesday. This is the largest increase in 12 months since June 1982.

The monthly CPI rose by 0.5% in December, after rising by 0.8% in November.

Rising inflation has become a hallmark of the recovery of the U.S. economy, as supply chain turmoil and shortages of materials and manpower increase corporate costs. Companies, in turn, pass on at least some of these higher entry costs to consumers.

Inflation is particularly strong in low-income households, as more of their income is consumed by rising prices, especially essentials such as food, fuel and shelter.

A very worrying point of pressure is the rise in rents, which, along with the prices of used cars and trucks, was the biggest driver of the December CPI rise.

On a bright note, although food prices rose 0.5 percent in the last month, they rose significantly less than in previous months. And natural gas prices — nearly half of U.S. households rely on them as a major source of heating — fell, along with gasoline prices, ending a long rise.

Removing the most volatile food and energy components of the CPI, the so-called core index rose by 0.6% in December, after rising by 0.5% in November.

Over the past year, the core CPI has risen 5.5 percent in the last month, the highest annual increase since 1991.

Inflation and interest rates

Inflation is so hot that at the end of last year, the U.S. Federal Reserve shifted from keeping borrowing costs low to get Americans back to work and keep up with rising price pressures.

At its last policy meeting, the Fed said it was accelerating a decline in bond purchases – which boosts job growth but boosts inflation while keeping long-term borrowing costs low – and is raising at least three interest rate hikes to cool inflation this year. .

A little inflation is a good thing, as the economy continues to grow, attracting consumers not to delay purchases. That’s important because consumer spending drives two-thirds of U.S. economic growth.

But inflation is too bad, if prices rise, and at the crucial point – consumers expect it to continue to rise – could lead to a more aggressive rate hike than expected by the Fed and a blow to the economic recovery.

In his time confirmation hearing on Tuesday, as President of the Faith for a second term, Jerome Powell said he and his political partners see a reduction in inflation by the middle of this year. But he also reassured senators that if the Fed sees “inflation persisting at higher levels than expected,” it will take action.

“If we need to raise interest rates further over time, we will,” he said, adding that “high inflation is a serious threat to maximum employment and a long expansion that can give us that.”

Meanwhile, the recovery of the US labor market is on track. While the economy added a staggering 199,000 jobs in December, the nation’s unemployment rate fell to 3.9 percent as it approached the pre-pandemic level of 3.5 percent.

An almost record number of job vacancies have led businesses to tighten pay and benefit packages to scare job seekers. To the extent that employees are confident about their job opportunities, they are leaving their work on records – often to take higher paid positions.

This is reflected in the average hourly earnings of all employees, which rose by 4.7% in December compared to the same period last year.