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Inflation Rate In US Hits Highest Level Since 1982

The US Inflation rate hit its fastest pace in nearly four decades last year as pandemic-related supply and demand imbalances, along with stimulus intended to shore up the economy, pushed prices up at a 7% annual rate. The Labor Department said on January 12 that the consumer-price index, which measures what consumers pay for goods and services, rose 7% in December from the same month a year earlier, up from 6.8% in November. That was the fastest since 1982 and marked the third straight month in which inflation exceeded 6%. The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 5.5% in December from a year earlier. That was a bigger increase than November’s 4.9% rise, and the highest rate since 1991. On a monthly basis, the CPI increased a seasonally adjusted 0.5% in December from the preceding month, decelerating from October and November.

The last time consumer prices clocked in at such an annual increase was in June 1982, but the circumstances were very different from today. While inflation right now is rising, back then it was falling after peaking at 14.8% in 1980, when Jimmy Carter was still president and the Iranian revolution had pushed up oil prices. By then, newly installed Federal Reserve Chairman Paul Volcker had set out to crush inflation by raising interest rates dramatically, causing a brief recession in 1980. As rates reached 19% in 1981, a much deeper recession began that lasted into 1982. By the summer of 1982, both inflation and interest rates were falling sharply.

Today, the Coronavirus pandemic has caused supply-chain disruptions, and a shortage of goods and materials, particularly autos, coupled with strong demand from consumers flush with the benefits of government stimulus are behind the inflation surge. Prices for autos, furniture, and other durable goods continue to drive much of the inflationary surge, fueled by largely pandemic-related imbalances of supply and demand that most economists expect to fade as COVID’s impact on economic activity eases. Prices of used cars and trucks soared 37.3% in December from a year earlier, while living room, kitchen and dining room furniture jumped 17.3%.

Economists and the Federal Reserve expect inflation to ease this year as supply bottlenecks clear and demand normalizes, but the Omicron variant has renewed uncertainty about the economic outlook as the pandemic continues. Constance Hunter, chief economist at KPMG, expects the booming demand for goods to reverse in the first half of 2022, easing overall price pressure. “I do think we’ll get back to some semblance of normal as people run through their savings and, hopefully, as we move past Omicron,” she said. Fed Chairman Jerome Powell in congressional testimony said he was optimistic supply-chain issues would ease this year and help bring inflation down. However, he also noted that the smaller U.S. labor force “can be an issue going forward for inflation, probably more so than these supply-chain issues,” Powell said.

The December inflation data suggest a mixed initial impact of the Omicron variant, which is posing a new threat to the economy as the pandemic enters its third year. Prices for airline fares and, in particular, hotels accelerated in December, though those for recreation services fell. Prices for in-person services generally slumped during previous surges in COVID infections. Gains in energy prices—which had been driven by pandemic-related disruptions as well as by weather and geopolitical factors—showed signs of flagging, with gasoline prices falling 0.5% in December from November. However, food inflation remains elevated, rising 0.5% in December from November, a slightly slower pace than the prior month.

Matthew Rosehttp://ourpolitics.net
Matt studies and analyzes politics at all levels. He is the creator of OurPolitics.net, a scholarly resource exploring political trends, political theory, political economy, philosophy, and more. He hopes that his articles can encourage more people to gain knowledge about politics and understand the impact that public policy decisions have on their lives. Matt is also involved in the preservation of recorded sound through IASA International Bibliography of Discographies, and is an avid record collector.

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