Home Interest rates Consumer prices jumped at the fastest pace since 1982

Consumer prices jumped at the fastest pace since 1982

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Inflation closed 2021 on a positive note, bad news for Biden’s White House and for economic policymakers, as rapid price gains erode consumer confidence and cast a shadow of uncertainty over the future of the ‘economy.

The consumer price index climbed 7 percent during the year through December and 5.5 percent after removing volatile prices such as food and fuel. The last time the main inflation index eclipsed 7% was in 1982.

Policymakers have spent months waiting for inflation to subside, hoping that supply chain problems might ease, allowing businesses to catch up with soaring consumer demand. Instead, continuous waves of viruses have locked factories down, and shipping lanes have struggled to weather protracted arrears as consumers continue to purchase goods abroad at a rapid pace. What happens next could be the biggest economic policy question of 2022.

New data from Wednesday showed the cost of used cars, shelter and food is rising rapidly.

The prices of used cars and trucks have been a major factor in recent inflation. Automakers are struggling to get their hands on parts – especially computer chips imported from Asia – delaying production of new vehicles and increasing demand for a limited supply of used vehicles.

Recent lockdowns in China intended to contain the coronavirus could exacerbate the shortage. As for vehicle prices, “it’s not over yet,” Jim O’Sullivan, chief US strategist at TD Securities, said before the report.

As prices continue to rise, policymakers are ready to respond. Federal Reserve officials have indicated that they plan to raise interest rates several times this year as they attempt to slow demand and the economy, to ensure that the price explosion at the era of the pandemic is not becoming a permanent feature of the economy. countryside.

Jerome H. Powell, Chairman of the Fed, stressed on Tuesday, when speaking to the Senate Banking Committee at a re-appointment hearing, that the steps the Fed is taking to reduce political aid s ‘will adapt to economic conditions.

“If we see inflation persist at high levels for longer than expected, if we need to raise interest rates further over time, we will,” he said at the hearing.

Investors and economists increasingly expect four interest rate hikes this year.

The future path of inflation is uncertain as price pressures spill over into many categories.

While gasoline prices moderated somewhat in December, food is increasingly expensive. Home food prices soared in December, while out-of-doors food grew even faster last month – and full-service restaurant meals were up 6.6% during the year.

Wall Street economists and analysts tend to focus closely on a price metric that excludes the costs of food and fuel, as they jump a lot from month to month, but these expenses matter a lot to households.

The fact that high prices are eating into household budgets seems to be one of the reasons why consumer confidence has weakened; gas and food tend to be among the biggest costs for buyers.

Jon Willow, 55 and from Interlochen, Mich., Has seen grocery costs skyrocket since the start of the pandemic – so much so that she and her partner have tried to move away from purchased produce by highlighting preserving vegetables from their garden and heating their hen house during the winter so that their hens continue to produce eggs.

“We now have a no-home feed policy – we use everything,” she said, noting that they had saved tomatoes, squash and asparagus.

The pair are worried about whether their retirement savings will last as long as they planned and expected, given the faster price increases. Both still work: Ms. Willow has a communications firm that works with local governments and utilities and is a co-founder of a nonprofit focused on expanding rural broadband. His partner is a full-time design engineer at a local company that manufactures custom panels for large companies. They had predicted the future assuming a lower rate of inflation.

A crucial question for families like Ms. Willow’s is how long today’s skyrocketing inflation persists. Policymakers and economists initially hoped they would ease quickly, and still expect them to moderate through 2022. Mr. O’Sullivan of TD Securities said he believed the Price gains could hover around 7% for a few months before starting to decline, making that inflation roughly peak.

However, they pay attention to a few factors that could cause the prices to go up too quickly for more convenience.

While inflationary pressures were squarely centered on goods at the start of the pandemic, they have recently crept into services – and most importantly, rents. Rent-based housing costs make up about a third of the consumer price index, so whether homeowners charge more matters a lot to headline inflation.

Authorities are also very uncertain about when the supply chain crisis that has driven up the cost of cars, sofas and imported goods of all kinds will ease. There are early signs that grunts on shipping lanes and depleted stocks may moderate, but other signals suggest that a return to normal will take time.

“You still see a few flakes of snow, but it still doesn’t amount to a storm,” Fed Chairman Powell said in Senate testimony on Tuesday of signs that the problems of the supply chain resolve themselves.

Caroline McCroskey, 27, from Tulsa, Oklahoma, manages marketing for a furniture maker that imports pieces from China and Cambodia and sells them to major retailers. The company saw a sharp increase in costs as the prices of shipping containers soared.

“Freight is bad enough already, but we’ve seen a dramatic increase in leathers and leather fabrics,” she said. “No one is feeling super optimistic that shipping rates will return to normal anytime soon.”

High inflation is a political handicap for the White House as Democrats head into a midterm election year where they fight to retain control of Congress. Republicans have increasingly accused President Biden of pushing prices up by flooding the economy with too much money, including a third round of stimulus checks.

The administration is doing what it can to alleviate supply chain problems, from extending port hours to freeing up strategic oil reserves to help bring fuel prices down. But most economists say these moves only help at the edges.

“Inflation has become a dominant political problem, but one that is largely beyond the control of the administration,” wrote Alec Phillips, an economist at Goldman Sachs, in a recent research report.