Washington, Jan. 13 (BUS): At first, it didn’t even register as a threat. Then it seemed like a temporary nuisance.
Now, inflation is glowing red for Fed policymakers — and delivers a sticky shock to Americans in the used car yard, supermarket, gas station and rental office, the Associated Press (AP) reports.
On Wednesday, the Labor Department reported that consumer prices jumped 7% in December compared with 12 months earlier — the highest year-on-year inflation since June 1982.
Excluding volatile energy and food prices, so-called “core” inflation rose 5.5% over the past year, the fastest pace since 1991.
Bacon prices are up nearly 19% from a year ago, men’s coats and suits are up nearly 11%, and living and dining room furniture is up 17%. Renting a car will cost you 36% more, on average, than it did in December 2020.
“Prices are rising broadly across the economy, and the Fed has been surprised by the extent of the inflation,” said Jos Foucher, chief economist at PNC Financial.
It wasn’t supposed to be this way – not with the coronavirus pandemic that has kept people confined at home and caused a devastating recession starting in March 2020.
Just over a year ago, the Fed predicted that consumer prices would end in 2021 only about 1.8% higher than they were a year ago, even below the 2% annual inflation target.
However, after decades of delayed economic thinking, high inflation reasserted itself last year with dizzying speed. In February 2021, the Labor Department’s CPI was only 1.7% ahead of the previous year. From there, year-over-year price increases accelerated steadily — 2.6% in March, 4.2% in April, 4.9% in May, and 5.3% in June. By October, the figure was 6.2%; by November, 6.8%.
At first, Federal Reserve Chairman Jerome Powell and others described rising consumer prices as just a “transient” problem — the result, essentially, of shipping delays and temporary shortages of supplies and workers as the economy recovered from the pandemic recession much faster than anyone expected.
Now, many economists expect consumer inflation to remain high at least through this year, with demand outstripping supplies in many areas of the economy.
The Federal Reserve has radically changed course. Most recently, in September, Fed policymakers were divided on raising interest rates at least once this year. But last month the central bank signaled that it expects to raise its benchmark short-term interest rate, now pegged near zero, three times this year in an effort to quell inflation. Many private economists expect up to four Fed rate increases in 2022.
“If we have to raise rates further over time, we will,” Powell told the Senate Banking Committee on Tuesday.
MI