US inflation hits new high of 7% in 40 years
The U.S. inflation rate is at its highest level in 40 years and shows no signs of slowing, new data revealed Wednesday.
The consumer price index rose 0.5% in December alone, the United States Bureau of Labor Statistics reported, enough to push the annual inflation rate to 7% for the first time since 1982.
The figure was in line with what economists expected, but up from the previous 40-year high of 6.8% in November.
Higher prices for shelters and used cars and trucks were the main contributors to the increase. Used vehicle prices rose more than 37 percent last year. Prices are on the rise mainly because a global shortage of semiconductor chips has reduced the number of new cars that can be produced, leading many buyers to scramble to find used ones instead.
After being a major contributor to the rise for several months, energy prices fell 0.4% in the month, as gasoline and natural gas prices both fell from their highs . On an annual basis, however, energy prices are up about 29 percent, and gasoline in particular has increased by nearly 50 percent.
The high inflation rate presents a conundrum for policymakers at the U.S. Federal Reserve, who are determined to keep interest rates low to help stimulate the economy amid the COVID-19 pandemic. But all of these cheap loans drive up the price of almost everything.
Upcoming rate hikes
Sal Guatieri, senior economist and director of BMO Capital Markets, said Wednesday’s numbers were a stark reminder to the Fed and everyone else of the threat of inflation. “Yesterday, [Fed] chair [Jerome] Powell warned that high inflation is a serious threat to the recovery and that the Fed should act to prevent it from taking hold, ”he said.
Economists predict that the US central bank will have to increase its benchmark interest rate up to four times this year.
“He really didn’t need to remind anyone that the economy doesn’t need aggressive stimulus any longer, and today’s report will only reinforce the view that the Fed may have taken a lot. late and may have to catch up quickly, “Guatieri said. .
Senior Economist and TD Bank Manager Leslie Preston said that while the numbers are currently insanely high, consumers should brace themselves for even higher numbers in the months to come.
“Buckle up,” she said. “After hitting new highs, core inflation is expected to rise further in the first quarter of 2022 year-on-year as price levels are compared to the relative weakness of early 2021.”
Preston added that “we expect the rate hikes will not be very far behind.”