US inflation hits 40-year high

The Labor Department said Thursday that the consumer-price index – which measures what consumers pay for goods and services – last month was at its highest level since February 1982, when compared to January a year earlier, and That was higher than December’s 7% annual rate. Inflation has been above 5 per cent for the last eight months.

The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 6% in January from a year earlier. This was a sharp increase compared to December’s 5.5% increase, and the highest rate in nearly 40 years.

On a monthly basis, CPI grew seasonally adjusted 0.6% last month, holding steady at the same pace as December.

Overall inflation in used car prices continued, rising 40.5% in January from a year earlier. The sharp rise in housing rental prices also contributed to the last month’s growth.

Food prices rose 7%, the fastest increase since 1981. Restaurant prices rose the most since the early 1980s, with fast-food prices increasing by 8% compared to a year earlier. Grocery prices rose 7.4%, as meat and egg prices continued to climb double-digit rates.

The January numbers include a once-a-year revision that affects seasonally adjusted data for the past five years. The Labor Department also updated the list of goods included in the calculation, known as the expense basket, to reflect consumer habits in 2019 and 2020.

Prices of autos, home furniture and appliances, as well as other long-lasting goods, continue to drive higher inflation due to supply-and-demand imbalances related to the pandemic. Most economists expect that dynamics to fade as businesses turn favorable and demand returns to normal. But it is not clear when the supply reduction will come to ease the pressure on prices, especially due to the recent disruptions from the Omron version of COVID-19.

Food inflation is also pushing up the grocery bills of consumers due to the steady rise in prices of meat, eggs and citrus fruits. Energy-price gains showed signs of easing after climbing sharply last year. But the recent sharp rise in crude oil prices threatens to hike petrol prices.

High inflation is the dark side of an unusually strong economy, posing a challenge for the Federal Reserve as it tries to suppress rising prices without affecting growth.

“This is not encouraging news for the Fed in its fight to push inflation back toward the 2% target,” said James Knightley, ING’s chief international economist. “Rate hikes will do little to solve supply chain tensions and labor shortages, but they may contribute to taking some steam off the economy and allow demand and supply to move toward a better balance at the cost of weaker growth.” Huh.”

The economy expanded by 5.5% last year, the fastest pace since 1984. This rapid growth is driven by a strong labor market. Employers added 1.6 million jobs in the past three months, adding to pressure on wages. With inflation well above the Fed’s target, steady gains in recruitment leave the Fed on track to raise interest rates next month and could prompt further growth in May and June.

Rising wage pressures related to the nation’s tight job market could also begin to feed into inflation. Annual wage growth was running at 4.5% in December, the fastest pace since 2002, according to the Federal Reserve Bank of Atlanta’s wage tracker, which adjusts for changes in the composition of workers.

Aichi Amemiya, senior US economist at Nomura Securities, said a steady pickup in rental costs, which account for about one-third of the CPI, is adding to inflationary pressures and will likely continue to do so.

The rental vacancy rate fell to 5.6% in the fourth quarter, its lowest level since the 1980s. Mr Amemia said such a low vacancy rate could push up housing rents even more as new lease contracts are signed this year, putting more pressure on inflation.

Alison Reyes and her boyfriend, Patrick Oldt, were in a new apartment close to the Schuylkill River in Philadelphia’s Center City for four months when the basement was flooded by high water after Hurricane Ida. This sent the couple looking for a new place to live—and gave them sticker shock because the prices of similar rental properties were 30% more expensive than they were just a few months ago.

“We were shocked. We were looking at the exact same apartments we’d seen a few months ago that had risen in price from $2,400 a month to $3,000 a month,” said Ms. Reyes, 34, who is a brand Works as a manager. “We ended up having to downgrade in size and space. Now we’re spending about 400 square feet more money for a smaller apartment.”

In December, about 47% of small businesses said they planned to raise prices over the next three months, according to the National Federation of Independent Business, a trade association. This figure is slightly lower than the previous three months of 2021, but close to the highest share since monthly records began in 1986.

Alex Mishkit launched his salon Alex Cher Beauty a year ago. Since then, it has increased prices to keep up with the rising cost of key supplies. Earlier it was nitrile gloves, which jumped up to 30%. Then there was an increase in the price of the waxing stick, followed by an increase of about 15% in the price of the wax itself.

“For a small-business owner who is going into his second year, it adds up. So I know about a slight increase because every dollar counts.” To her surprise, she said, the customers were supportive.

“I was certainly amazed by the positive responses I have received from customers,” she said, adding that it is understandable how consumer expectations have changed over the past year. “I mean, just turn on the news and it’s about inflation so I don’t think there’s going to be a shock if there’s a slight increase in prices.”

Mr. Amemia of Nomura Securities said rising inflation expectations among consumers, as well as increased wages in the labor force, increase the risk that price pressures remain persistent. This could encourage the Fed to raise rates higher than expected, even if the overall inflation trend is set to decline in the coming months, he said.