US Inflation Spiked The Most Since 1982

US Inflation Saw A 7% Surge From A Year Earlier - Here's What's Pushing It Higher.

Inflation rose at its quickest rate in nearly 40 years last month, accelerating 7%, raising household costs, eating into wage increases, and placing additional pressure on President Joe Biden and the Federal Reserve to address what has become the greatest danger to the American economy.

Prices for automobiles, gasoline, food, and furnishings have all risen significantly as part of a rapid economic recovery fueled by huge infusions of government aid and Fed emergency action that lowered interest rates. As Americans have increased their spending, supply chains have been restricted by shortages of personnel and materials.

“Inflation ended 2021 very hot,” Ben Ayers, a senior economist at Nationwide, said. According to Ayers and other economists, prices may drop as supply chain problems ease over the course of 2022, but inflation will remain high.

Inflation accelerated 5.5 percent in December, the most since 1991, according to figures released by the Labor Department on Wednesday. Overall inflation increased 0.5 percent in December, down from 0.8% in November.

Rising costs have destroyed the robust raises that many Americans had been receiving, making it more difficult for families, especially low-income ones, to cover their basic needs. Polls show that inflation has supplanted even the coronavirus as a public concern, demonstrating the political danger it poses to President Biden and congressional Democrats.

Inflation is largely driven by pandemic-driven mismatches between demand and supply. New car prices have increased more than 37% in the past year due to semiconductor shortages, which has resulted in  new car production has been limited. In December, new vehicle prices rose 1%, and they've increased 11.8% over the last 12 months.

The cost of apparel rose 1.7% in December, its second month of significant increases, and is up 5.8% from a year ago.

There was some relief in December. Gas prices fell 0.5% in the month, yet they are still 50% more pricey than last year.

Many economists anticipate that inflation will drop as the omicron wave fades and as Americans spend more of their money on services like travel, eating out, and cinema-going. That would reduce demand for products, which is a good thing since supply chains are beginning to untie.

At present, rent, meals at restaurants, and groceries are all increasing. These increases are being driven by strong demand from customers who are taking advantage of a strong job market and rising salaries. Last month's unemployment rate was 3.9 percent..

At present, there are shortages and more expenses at several U.S. grocery retailers. Labor and supply-chain challenges have been exacerbated by the omicron variant and bad weather.

Higher labor and food expenses have been increasing across the industry. Darden Restaurants (NYSE: DRI), which owns Olive Garden, LongHorn Steakhouse, and other restaurants, said it increased prices by 2% at the end of last year and expects to raise them by another 4% over the next six months.

Darden CEO Gene Lee lately said that this is “the toughest inflationary environment we’ve seen in years.”

Chair Jerome Powell said on Tuesday that the Federal Reserve is prepared to speed up its planned interest rate hikes if it becomes necessary to combat high inflation more aggressively. The Federal Reserve has predicted that it will raise its benchmark short-term rate, which is currently set at 0%, three times in 2022.

The Fed's rate hikes might also raise borrowing costs for home and auto purchases, as well as business loans, which may slow the economy. The Fed is also ending its monthly bond purchases, which were designed to lower long-term interest rates in order to encourage borrowing and spending.

The Fed's turn hasn't placated economists or some senators who wonder if the central bank has been too sluggish to end its ultra-low-interest rate approaches in the face of growing inflation.

In his appearance before Congress on Tuesday, Powell said the Fed had erred in thinking that supply-chain bottlenecks that have driven up prices of goods would not endure nearly as long. He claimed that, once the chains were straightened out, prices would come down.

However, Powell acknowledged that the supply constraints have remained unchanged. He pointed out that many cargo ships are currently docked outside the port of Los Angeles and Long Beach, California's major, waiting to discharge.

The administration of US President Joe Biden has been confronted with public anger over the increase in inflation, and the president has claimed that his government's investments in ports, roads, bridges, and other infrastructure would help by breaking down logjammed supply chains.

“Supply chain issues pushed up inflation last year, and that won’t duplicate this year,” Ryan Sweet of Moody’s Analytics stated.

Economists don't think that inflation will drop all the way down to the Fed's 2 percent target.

TD Bank's senior economist Leslie Preston predicts that, by the end of this year, prices will be increasing at a 3% rate.

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