Consumer prices increased 7.5% in the 12 months ending in January, the fastest pace of inflation since 1982.
The much-anticipated numbers reported by the Bureau of Labor Statistics on Thursday revealed the extent of the inflation that has plagued the United States during its recovery from the COVID-19 pandemic.
Inflation rose throughout the course of 2021 and early 2022. For most of the past summer, inflation hovered at just over 5% before once again increasing over the last few months.
Prices rose for goods and services across the board, but they are being led by massive increases in used car prices and the cost of energy. Used car prices have increased by a staggering 40.5% since last year, while energy prices rose by 27%. Food prices are also up significantly, pinching households every time they go to the grocery store.
Home prices have also soared in the past year, and rents are up as well. “The price pressures on households just don’t end,” said Greg McBride, Bankrate’s chief financial analyst.
Too-high inflation follows the massive spending undertaken by the federal government to prop up households during the worst of the pandemic, as well as sustained monetary easing by the Federal Reserve.
The steep rise in prices has damaged President Joe Biden’s approval and his ability to pass the rest of his spending agenda, given that some centrist lawmakers are uneasy with funneling more money into the economy. For instance, Democratic Sen. Joe Manchin expressed apprehension about passing Biden’s Build Back Better plan because of the country’s inflationary woes.
Rep. Jason Smith of Missouri, the top Republican on the House Budget Committee, blamed Biden for the high inflation.
“For months, at President Biden’s direction, Washington Democrats denied inflation existed and then dismissed it as transitory,” he said. “While doing nothing to lower prices for working families, they worked to ram their next partisan, $5 trillion spending bill through Congress.”
RENT SKYROCKETS ACROSS THE COUNTRY AGAINST THE BACKDROP OF INFLATION
The Fed is gearing up to hike interest rates in response to the higher prices. The central bank indicated during its last meeting in January that there will be multiple rate hikes this year, with the first likely coming in March.
“This latest look at inflation could get the Federal Reserve talking about a potential half-point interest rate hike at their March meeting,” said McBride. “The next CPI release will be March 10, just days before the Fed meets and during their ‘quiet period’ which will be too late for them to convey any updated thoughts publicly.”
The Fed has a narrow dual mandate: achieving maximum employment and maintaining price stability — that is, keeping inflation in check. Given that the employment situation has been continually improving, the central bank is now even more focused on reining in inflation.
The last time the Fed hiked interest rates was in 2018, after which it began incrementally reducing rates. In 2020, central bank officials dropped the federal funds rate to near-zero at the outset of the COVID-19 pandemic and has kept them at that level since then.
Fed Chairman Jerome Powell has predicted that inflation will be a bit sticky this year and could remain elevated through at least the middle of this year.
One point of significant economic improvement in recent months has been the employment situation.
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The omicron strain of the coronavirus, which caused the biggest surge in cases to date, was expected to peel back job growth, given the enormous number of people it affected, but the economy crushed expectations in January and added 467,000 jobs, much more than the consensus prediction of 150,000.
Additionally, November and December’s less-than-stellar reports were revised up by a big margin — 710,000 more jobs.
