U.S. consumer prices jumped 7% in December compared to a year earlier, the highest inflation rate in 40 years, the government’s Labor Department reported Wednesday.
Higher prices coursed throughout the U.S. economy in 2021, with the biggest increases since 1982. The annualized jump in December was up from the 6.8% figure in November and was a half-percentage point gain over the course of a month.
Analysts say robust consumer demand collided with coronavirus-related supply shortages, pushing up prices over the year for big ticket items like cars and furniture, but more importantly for must-buy, everyday purchases like food and gasoline for motorists.
Despite the year-over-year inflation surge, President Joe Biden said the report “shows a meaningful reduction in headline inflation over last month, with gas prices and food prices falling.”
He said it “demonstrates that we are making progress in slowing the rate of price increases. At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets.”
The rapidly rising costs for consumers have caught the attention of the White House and policy makers at the country’s central bank, the Federal Reserve, even as they say they expect inflation to remain high throughout 2022.
In November, Biden called for the Federal Trade Commission to investigate “mounting evidence of anti-consumer behavior by oil and gas companies.” The Fed is signaling new efforts to rein in inflation by ending its direct financial support of the economy in March, sooner than originally planned, and to increase its benchmark interest rate that influences borrowing costs for businesses and consumers.
Federal Reserve Chairman Jerome Powell told a congressional committee Tuesday that getting prices down to more stable levels was key to ensure a lasting recovery from the pandemic.
“If inflation does become too persistent, if these high levels of inflation become too entrenched in the economy or people’s thinking, that will lead to much tighter monetary policy from us, and that could lead to a recession and that would be bad for workers,” Powell told lawmakers.
For consumers, inflation is often more of a daily fact of life than other aspects of the American economy that have recovered smartly since the coronavirus pandemic first swept into the U.S. in March 2020.
The U.S. economy added a record-setting 6.4 million jobs last year, the unemployment rate dropped from 6.3% in January to 3.9% in December and rank-and-file workers’ hourly paychecks rose by 5.8%. Government assistance checks sent to all but the wealthiest American households helped many families.
But prices consumers paid rose markedly.
Government statistics showed that gasoline prices paid by motorists at service stations were up 58% last year, while the price of used cars and trucks were up 31% and new vehicles by 11%.
Meat, poultry and fish prices were up 13%, furniture and bedding by nearly 12%. Fast-food and casual dining places raised their prices by nearly 8%.