The US inflation rate is at its highest level in 40 years and is showing no signs of slowing down, new data revealed on Wednesday.
The consumer price index rose 0.5 percent in December alone, the US Bureau of Labor Statistics reported, enough to push the annual inflation rate to seven percent for the first time since 1982.
The figure was in line with what economists had expected, but was up from a 40-year high of 6.8 percent in November.
Higher prices for shelter and used cars and trucks made the biggest contribution to the increase. The prices of used vehicles increased by more than 37 percent last year. Prices are rising mostly because a global shortage of semiconductor microchips has reduced the number of new cars that can be produced, leaving many buyers scrambling to find used cars.
After being a major contributor to the uptrend for several months, energy prices fell 0.4 percent in the month as gasoline and natural gas prices moved from highs to lows. On an annual basis, however, energy prices have increased by about 29 percent, and gasoline in particular has increased by about 50 percent.
The high inflation rate presents an enigma to policy-makers at the Federal Reserve, who are intent on keeping interest rates low to help stimulate the economy in the face of the pandemic. But all that cheap lending is driving up the price of almost everything.
rates going up
Bank of Montreal economist Sal Guatieri said Wednesday’s numbers were a harsh reminder to the Fed and everyone about the threat of inflation. “Yesterday, [Fed] Chair Powell warned that high inflation is a serious threat to the recovery, and the Fed will need to act to prevent it from getting stuck,” he said.
Economists expect the US central bank to raise its benchmark interest rate by up to four times this year.
“They really didn’t need anyone to remind them that the economy no longer needs aggressive stimulus, and today’s report will only reinforce the view that the Fed has fallen well behind the curve, and is in a hurry to catch up.” Might be needed,” Guattieri said.