Inflation jumped 7% last year, biggest gain since 1982
Inflation soared 7% in 2021, the biggest increase in nearly 40 years, the Labor Department said on Wednesday.
The Consumer Price Index, which tracks the price of a broad range of goods and services, increased 7% from the year before in December, although its rate of month-to-month increases slowed from previous months. Core inflation, which strips out volatile food and gas prices, rose 5.5% from a year ago.
Price increases for shelter and used cars drove the surge. Used car and truck prices shot up 37% last year, with the average used vehicle now costing $29,000, according to Edmunds. Shelter costs rose 4.1%. Energy costs increased 29% last year but dropped in December, reflecting falling prices for gasoline and natural gas.
"Another month, another big and broad increase in the prices paid by American consumers," Sal Guateri, chief economist at BMO Capital Markets, said in a note.
Younger consumers have never experienced this sort of spiraling inflation. The last time prices rose so quickly was in the summer of 1982, as it was cooling off from the double-digit increases of the 1970s.
"We are probably at the peak of inflation increases, but that peak looks months long until fundamental factors such as supply-chain disruptions and the chip shortage get fixed," Robert Frick, corporate economist at the Navy Federal Credit Union, said in a report.
"This is sapping consumers' buying power, as real hourly wages have now dropped for nine straight months. And lower income Americans are hurt most, given high prices in food and energy take up a bigger portion of their paychecks," he added.
Indeed, while wages have been rising at the fastest pace in decades, particularly for lower-paid workers, price increases for essentials have largely eaten up those gains.
For much 2021, policymakers described rising prices as "transitory," assuring the public that once snarled supply chains eased up, costs of consumer goods would diminish. But so far, that hasn't happened.
As Americans have ramped up spending on cars, furniture and appliances, surging demand has been by exacerbated by supply shortages of semiconductors and other parts.
Federal Reserve Chair Jerome Powell told the Senate yesterday that high inflation poses a "severe threat" to restoring the job market to full health. Today there are still nearly 4 million fewer Americans working than there were before the pandemic.
The Fed is expected to raise interest rates at least three times this year to cool rising inflation, although many economists predict four rate hikes.
The central bank expects its preferred of inflation gauge (which accounts for consumers switching to cheaper products) to fall to 2.6% this year, with the nation's unemployment rate forecast to descend to 3.5%, according to projections from the Fed's most recent meeting in December.
The Associated Press contributed reporting.