Inflation soars — 7% jump is fastest since ’82
WASHINGTON — Inflation jumped at its fastest pace in nearly 40 years last month, a 7% spike from a year earlier that is increasing household expenses, eating into wage gains and heaping pressure on President Biden and the Federal Reserve to address what has become the biggest threat to the U.S. economy.
Prices have risen sharply for cars, gas, food and furniture as part of a rapid recovery from the pandemic recession that was fueled by vast infusions of government aid and emergency intervention by the Fed, which slashed interest rates. As Americans have ramped up spending, supply chains have been squeezed by shortages of workers and raw materials.
“Inflation ended 2021 very hot,” said Ben Ayers, senior economist at Nationwide. Ayers and other economists say prices may cool off some as snags in the supply chain ease, but inflation will remain elevated throughout 2022.
The Labor Department reported Wednesday that its measure of inflation that excludes volatile food and gas prices jumped 5.5% in December, the fastest such increase since 1991. Inflation rose 0.5% overall from November, down from 0.8% the previous month.
Nicole Pomije, a bakery owner in Minnesota, said she is increasing prices for her cookies because of surging costs for butter and other ingredients.
Her basic cookies were priced at 99 cents each, while premium versions such as white chocolate were selling for $1.50 each. But Pomije said she will have to bump up the prices of her basic cookies to the premium price.
“We have to make money,” she said. “We are a business. We don’t want to lose our customers. But I think we might.”
Rising prices have wiped out the healthy pay increases that many Americans have been receiving, making it harder for households, especially lowerincome families, to afford basic expenses. Polls show that inflation has started displacing even the coronavirus as a public concern, making clear the political threat it poses to President Biden and congressional Democrats.
A significant portion of inflation is still being driven by pandemic-driven mismatches between demand and supply. Used car prices have soared more than 37% over the past year because new car production has been limited by shortages of semiconductors. New car prices jumped 1% in December and have soared 11.8% in the past year. Clothing costs are up 5.8% from a year ago.
There was some relief last month. Gas prices dropped 0.5% in December, yet they are still 50% higher than a year ago.
Most economists expect inflation to moderate once the omicron wave fades and as Americans shift more of their spending to services such as travel, eating out and moviegoing.