January 12, 2022 Updated: January 12, 2022
Cartons of eggs are displayed on a shelf at the Marina Supermarket in San Francisco, Calif., on July 17, 2015. (Justin Sullivan/Getty Images)
As the U.S. annual inflation rate climbed to 7 percent in December, the highest level since June 1982, new data
show that almost every category was higher in the 12 months ending in December.
Food prices surged 6.3
percent, while energy was up 29.3 percent. New vehicles and used cars and
trucks soared 11.8 percent and 37.3 percent, respectively. Apparel jumped 5.8
percent, shelter picked up 4.1 percent, and medical care services inched higher
2.5 percent.
Close to every food item
cost more last month compared to the same time a year ago, including meat and
fruits and vegetables.
In the overall category of
meat, poultry, fish, and eggs prices swelled 12.5 percent.
Beef and veal prices were
up 12.6 percent, pork prices surged 15.1 percent, ham rose 10.5 percent, and
chicken soared 10.4 percent. The cost of eggs spiked 11.1 percent, while fish
and seafood rose 8.4 percent.
Fruits and vegetables
increased 5 percent, milk rose 4.2 percent, and coffee surged 6.3 percent.
Among other food items on
the list, baby food surged 7.9 percent, margarine advanced 6.7 percent,
potatoes soared 4.8 percent, and apples rose 7.8 percent.
The only food products to
fall were frankfurters (-0.6 percent) and cheese (-0.6 percent).
Energy prices eased on a
month-over-month basis, but they were still high compared to the same time last
year.
Gasoline soared at an annualized
rate of 49.6 percent, electricity prices jumped 6.3 percent, and natural gas
increased 24.1 percent.
Throughout the U.S. economy,
nearly everything was more expensive last month. Some of the items in the
marketplace that fell included wireless telephone services (-0.3 percent),
health insurance (-1.2 percent), audio equipment (-5 percent), and girls’
apparel (-2.5 percent).
Economists surveyed by Dow Jones
had anticipated that the widely followed inflation gauge would come in at 7
percent.
The core inflation rate, which
strips the volatile food and energy sectors, advanced 5.5 percent
year-over-year, according to the Bureau of Labor Statistics.
On a monthly basis, the consumer
price index (CPI) rose 0.5 percent, while the core CPI increased 0.6 percent.
Every index was higher in the 12
months ending in December.
Is this the peak of inflation?
This is the expectation, although it is likely to stay above 3 percent
throughout the year, says James Knightley, the chief international economist at
ING.
“The assumption is that supply
chain strains will start to ease from the summer onwards while the upside
impetus from housing should fade as rising mortgage rates bite. Higher
borrowing costs in general should start to take some of the steam out of the
economy,” he said in a note. “Then there is the prospect of outright falls in
some components, such as second-hand car prices, which are up by more than 50%.
As the global chip shortages ease we should see more availability for new
vehicles and second-hand car prices could fall sharply.”
The personal consumption
expenditure (PCE) price index, the Federal Reserve’s go-to inflation
measurement, is poised to end 2021 at 5.8 percent, Morgan Stanley forecasts.
The official PCE price index
reading is scheduled for release on January 28.
Inflation Fallout
At the opening bell, the leading
benchmark indexes had dismissed the red-hot inflation numbers.
The Dow Jones Industrial Average
rose 152 points to 36,404. The S&P 500 added 0.59 percent to 4,740, while
the Nasdaq Composite Index tacked on 152 points to 15,305.
The U.S. Treasury market was in a
sea of red ink, with the benchmark 10-year yield sliding to 1.72 percent. The
one-year bill dipped to 0.442 percent, while the 30-year bond slid to 2.061
percent.
The U.S. Dollar Index (DXY),
which gauges the greenback against a basket of currencies, tumbled 0.36 percent
to 95.28, from an opening of 95.58, Wednesday.
February gold futures picked up
$2.90, or 0.16 percent, to $1,821.70. February silver futures jumped $0.123, or
0.54 percent, to $22.945 per ounce. Bitcoin prices rallied 2.28 percent to
$43,796, while Ethereum prices surged 4.05 percent to $3,372.
The Federal Reserve is closely
monitoring the inflation situation as the figures will guide its direction on
interest rates. During his re-nomination hearing in front of the Senate Banking
Committee, Fed Chair Jerome Powell revealed that rate hikes and tighter
monetary policy would be necessary to combat inflation.
“If we see inflation persisting
at high levels longer than expected, then if we have to raise interest more
over time, we will,” Powell said. “We will use our tools to get inflation
back.”
While the Fed’s dot-plot projects three rate hikes in 2022, Goldman Sachs is
penciling in four increases this year: March, June, September, and December.
Before the latest CPI data,
analysts at Wells Fargo noted that if price inflation stood at 7 percent, it
would be challenging for “the Fed to stand idly by.”
“Although the exceptional pace of
goods inflation and momentum in shelter costs are still firmly rooted in the pandemic,
the increasingly tight labor market and ensuing wage pressures will make it
difficult for inflation to fall back on its own,” the bank stated in a note.
“The FOMC has been discussing a more aggressive response to inflation in recent
weeks, and with the core CPI still likely to be around 4% by the end of the
year, we do not believe it will end up being just talk. If CPI inflation is
still around 7% heading into the March meeting, as we expect it to be, it will
be hard for the Fed to stand by idly.”
Last week, speaking after the
release of the disappointing December jobs report, President Joe Biden stated
that he is “confident” the central bank will grapple with inflation while
maintaining economic growth.
“I want to be clear: I’m
confident the Federal Reserve will act to achieve their dual goals of full
employment and stable prices and make sure the price increases do not become
entrenched over a long term, with the independence that they need,” he said at
the White House.
The Biden administration has introduced
a series of policy measures to rein in four-decade high price inflation,
including tapping the nation’s strategic petroleum reserves and allocating $500
million to smaller independent food processors.
More Data This week
December retail sales data will
be released Friday. Economists are projecting a flat reading.
Industrial production and
manufacturing output will also be published, with market analysts forecasting
monthly growth of 0.3 percent and 0.5 percent, respectively.
The University of Michigan will
provide its preliminary numbers for January. Consumer sentiment is predicted to
ease this month.
U.S. Inflation Shows More Staying Power After
Hitting 7% in 2021
U.S.
Inflation Hit 7% in December, Fastest Pace Since 1982
https://www.wsj.com/articles/us-inflation-consumer-price-index-december-2021-11641940760
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