Inflation accelerated to 7% in December, hitting a new four-decade high, as consumer prices continued to rise across a broad range of goods and services.
The Bureau of Labor Statistics’ Consumer Price Index rose 7% in the year through December—faster than the 6.8% seen in November, more than triple what’s seen as a stable baseline inflation rate, and roughly matching the pessimistic predictions of economists, new data released Wednesday showed. Shortages of materials and workers are disrupting the country’s balance of supply and demand, and inflation is now higher than it’s been since June 1982.
- The Consumer Price Index rose 7% in the year through December, the highest inflation rate since 1982
- Prices in most spending categories rose, with some items (like used cars) jumping by large double digits
- Economists said the Federal Reserve is now even more sure to raise benchmark interest rates this year to fight inflation
The December data caps off a year of dizzying price increases for consumers grappling with the tumultuous pandemic economy. And if food and energy prices are excluded, the acceleration in inflation was even sharper, up to 5.5% from 4.9%. Now the Federal Reserve is even more sure to raise benchmark interest rates this year in order to fight inflation, meaning borrowing costs will rise, economists said.
“Another month, another big and broad increase in the prices paid by American consumers,” Sal Guatieri, a senior economist at BMO Capital Markets, wrote in a commentary. “Inflation showed no sign of easing in December.”
While price increases were broad-based, major contributors were the cost of used vehicles and housing. Used car prices rose 37.3% (nearly a record) during the year, and the cost of housing—including owning and rent—rose 4.1%, marking the fastest inflation since 2007.
In one positive sign, some economists said the 7% in December may be the worst of the inflation, and businesses and economists surveyed for the Federal Reserve’s latest “Beige Book” noted that transportation bottlenecks had stabilized and price increases were decelerating a bit.
“Inflation should likely moderate from this point going forward,” said Ryan Sweet, an economist at Moody’s Analytics. Consumer spending should shift from goods to services if and when the latest wave of COVID-19 cases subsides, relieving some of the demand for material goods that’s fueled inflation, he said.
During the month, prices rose 0.5%, decelerating from the previous monthly increase of 0.8%, as consumers got some relief at the gas pump. Food prices continued to rise, but at a slower pace, increasing 0.5%, the least since August.
Economists warned that the December trajectory for food and energy prices was likely temporary, however. Oil prices, which heavily influence the cost of gas, have shot back up in recent weeks and disruptions in the supply chain, both from the rapid spread of COVID-19 and bad weather, are adding pressure to prices this month.
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