Another month, another record jump in prices.
Inflation hit a new 39-year high in December as lower energy costs were not enough to offset steadily rising commodities such as food, rents and cars against a backdrop stubborn supply chain bottlenecks and labor shortages.
The consumer price index jumped 7% last year, the fastest pace since 1982, the Labor Department said on Wednesday. That’s up from 6.8% a year in November, which was also a nearly four-decade high.
The rapidly spreading omicron variant of COVID has likely stepped up price increases by causing more worker absences from global delivery networks and slowing shipments, says Wells Fargo economist Sam Bullard. That more than wiped out any easing in demand and prices in COVID-sensitive industries like travel, Bullard says.
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Excluding volatile food and energy products, so-called “core” prices rose 5.5% in 2021, a new 30-year high. On a monthly basis, aggregate consumer prices rose 0.5% in December, while basic prices rose 0.6%.
Economists expect headline inflation to slow over the next few months as gasoline and other energy prices continue to decline and crude oil prices fall. But core inflation is expected to rise before falling as supply issues are resolved.
“Hang in there,” says economist Leslie Preston of TD Economics. “After hitting new highs, core inflation is expected to rise further in the first quarter of 2022 year over year.”
Last month, energy prices fell for the first time in six months, falling 0.4%, while gasoline prices fell 0.5%. This left pump prices up 49.6% again last year.
But other costs continued to climb. Hotel rates have jumped 23.9% per year. Prices for used cars and trucks rose 3.5% per month and 37.3% for the year. Prices rose 11.8% per year for new cars, 7.4% for home furnishings, 5.8% for clothing and 6.3% for groceries.
Prices for chicken and fish have jumped 10.4% and 8.4%, respectively, in the past year after further monthly increases. Beef rose 13% and pork 15.1%, despite declines last month.
Capital Economics economist Paul Ashworth says further increases in food prices may be coming with reports of empty store shelves in the northeast due to omicron worker absences and disruptions caused by winter storms.
The pandemic was the source of soaring inflation.
Consumers who were already buying products such as televisions and household appliances while stranded at home during the health crisis began to eat out and travel more. Many were willing to splurge after racking up more than $ 2.5 trillion in additional savings from federal stimulus checks and increased unemployment benefits, as well as the cut during shutdowns.
But a supply network still hampered by the pandemic was not prepared for the buying frenzy. Many factories abroad are operating at partial capacity. Shipping containers are rare. And many truck drivers and warehouse workers are still caring for children at home or are concerned about contracting COVID.
The rare collision of robust demand and tight supply has triggered widespread product shortages and higher prices that exceed solid wage increases for low- and middle-income Americans.
During his confirmation hearing for a second term on Wednesday, Federal Reserve Chairman Jerome Powell told lawmakers the central bank was prepared to raise interest rates faster than expected to contain inflation. The Fed has already stepped up the phase-out of its bond buying stimulus, a move that would pave the way for interest rate hikes as early as March.