Cue the Freakout from the Establishment Economists

U.S. inflation hit its fastest pace in nearly four decades last year as pandemic-related supply and demand imbalances, along with stimulus intended to shore up the economy, pushed prices up at a 7% annual rate.

The Labor Department said Wednesday the consumer-price index — which measures what consumers pay for goods and services — rose 7% in December from the same month a year earlier, up from 6.8% in November. That was the fastest since 1982 and marked the third straight month in which inflation exceeded 6%.

The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 5.5% in December from a year earlier. That was a bigger increase than November’s 4.9% rise, and the highest rate since 1991.

On a monthly basis, the CPI increased a seasonally adjusted 0.5% in December from the preceding month, decelerating from October and November.

………

Prices for autos, furniture and other durable goods continue to drive much of the inflationary surge, fueled by largely pandemic-related imbalances of supply and demand that most economists expect to fade as Covid-19’s impact on economic activity eases. Prices of used cars and trucks soared 37.3% in December from a year earlier, while living room, kitchen and dining room furniture jumped 17.3%.

Economists and the Federal Reserve expect inflation to ease this year as supply bottlenecks clear and demand normalizes, but the Omicron variant of Covid-19 has renewed uncertainty about the economic outlook as the pandemic continues.

………

The December inflation data suggest a mixed initial impact of the Omicron variant, which is posing a new threat to the economy as the pandemic enters its third year. Prices for airline fares and, in particular, hotels accelerated in December, though those for recreation services fell. Prices for in-person services generally slumped during previous surges in Covid-19 infections.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store