Inflation has risen 7% in the past year, its highest level since 1982

Inflation rose at its fastest 12-month pace in nearly 40 years in December, according to a closely watched indicator released by the Department of Labor on Wednesday.

The consumer price index, a gauge that measures costs on dozens of items, rose 7%, according to the department’s Bureau of Labor Statistics. On a monthly basis, the CPI rose 0.5%.

Economists polled by Dow Jones expected the measure to rise 7% on an annual basis and 0.4% from November.

The annual movement was the fastest increase since June 1982.

Despite the strong gain, stock market futures rose on the news, while government bond yields were mostly negative.

“December’s CPI report of a 7% increase in the past 12 months will be shocking to some investors because we haven’t seen such a high number in nearly 30 years,” said Brian Price, Head of Investment Management for Commonwealth Financial Network. “However, this impression was widely anticipated by many, and we can see this reaction in the bond market as longer-term interest rates fall so far this morning.”

Excluding food and energy prices, the so-called core CPI rose 5.5% year-on-year and 0.6% from the previous month. This compared to estimates of 5.4% and 0.5%. For core inflation, this is the strongest annual growth since February 1991.

Shelter costs, which account for almost a third of the total, rose 0.4% for the month and 4.1% for the year. It was the fastest pace since February 2007.

Used vehicle prices, which have been a major component of rising inflation during the pandemic due to supply chain constraints that have limited new vehicle production, rose another 3. 5% in December, bringing the increase from a year ago to 37.3%.

Conversely, energy prices mostly fell during the month, falling 0.4%, with fuel oil down 2.4% and gasoline down 0.5%. Nonetheless, the complex as a whole rose 29.3% over the 12-month period, including a 49.6% gain for gasoline.

Federal Reserve officials are watching inflation data closely and are expected to raise interest rates this year in a bid to combat rising prices and as the employment picture edges closer to full employment. . Although the central bank uses the personal consumption expenditure price index as its primary measure of inflation, policymakers consider a wide range of information to make their decisions.

“This morning’s CPI reading only reinforces what we already know: consumer wallets are feeling price pressures and, in turn, the Fed has signaled a more hawkish approach. whether the Fed will pick up the pace given that inflation is apparently here to stay, at least in the medium term,” said Mike Loewengart, managing director of investment strategy at E*Trade. which continue to rise, the impact on the supply chain and labor shortages could persist, which only fuels the rise in prices.”

Inflation has eaten away at otherwise large wage gains for workers. However, real average hourly earnings posted a slight 0.1% increase for the month, with the overall gain of 0.6% offsetting the overall 0.5% increase in the CPI. Year-over-year, real incomes fell 2.4%, according to BLS calculations.

Fed officials largely attribute rising inflationary pressures to pandemic-specific issues in which a shortage of workers has led to clogged supply chains and empty store shelves. Although there are signs that cases of omicron variants could soon peak, the continued Covid problems combined with cold weather in the North East indicate “further upward pressure on food prices” , wrote Paul Ashworth, chief US economist at Capital Economics.

Overall food prices rose 0.5% in December and 6.3% year-on-year, the biggest rise since October 2008.

Investors widely expect the Fed to start raising rates in March. Fed Chairman Jerome Powell during his Tuesday confirmation hearing before the Senate banking panel did not provide specific dates, but acknowledged that as long as current conditions persist, rate hikes would be on the way. .

Markets are pricing nearly a 79% chance the first quarter-percentage-point hike will occur in May, and see about a 50% chance the Fed could adopt four such hikes in 2022, according to the tool. WEC’s FedWatch.

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