The price of goods and services in the US continue to rise at rates unseen in decades, jumping 7% in December compared to the same month last year – the seventh consecutive month in which inflation has topped 5%.
The news represents a blow to the Biden administration and the Federal Reserve, which until recently have characterized soaring prices as a “transitory” phenomenon brought about by supply chain issues triggered by the pandemic.
On Wednesday, the labor department said the consumer price index (CPI) – which measures what consumers pay for a wide range of goods – rose 0.5% last month compared with November and 7% compared with December 2020.
Price increases in housing and used cars and trucks were the largest contributors to the inflation rate, with 0.4% and 3.5% increases in price compared with November, respectively. Food prices also continued to increase, though the 0.5% jump in prices is not as high as increases seen in previous months.
Disruptions to the global supply chain caused by the pandemic are still causing shortages and driving up the price of goods, from cars to meat and furniture. In November the average price of a used vehicle in the US was $29,011 – 39% more than just 12 months earlier.
The Federal Reserve is now preparing to raise interest rates to curb inflation and has indicated that it may raise rates three times in 2022, perhaps beginning as early as March. The Fed has stopped calling inflation “transitory” and on Tuesday, the Fed chair, Jerome Powell, told Congress that it was time for the central bank to move away from emergency pandemic measures.
“What we have now is a mismatch between demand and supply. We have a very strong demand in areas where supply is constrained,” Powell said.
“If we see inflation persisting at high levels longer than expected [and] we have to raise interest rates more over time, we will.”
At a White House press briefing on Tuesday, press secretary Jen Psaki told reporters that the administration was expecting elevated figures on Wednesday and that it expects month-over-month inflation to be “moderate” in coming months, though forecasters are expecting inflation to head toward more typical figures by the end of the year.
Psaki said the historic price increases emphasize the need for Congress to pass Biden’s climate and social safety net bill, which has hit an impasse.
“We continue to press for steps in working with Congress to … lower costs for the American people,” Psaki said. “That’s why we want to get Build Back Better done.”