Inflation increased at the fastest rate in 40 years over the last twelve months, exceeding expectations, the Labor Department announced Wednesday.
The consumer price index, a major inflation gauge, for all items surged 0.5 percent for the month and 7.0 percent for the last twelve months ending in December, representing the largest annual spike since June 1982, when inflation hit 7.1 percent.
The core CPI, excluding volatile food and energy costs that can over-exaggerate inflation, picked up 0.6 percent for the month following a 0.5 percent increase in November, marking the sixth time in the last nine months it has increased at least 0.5 percent.
Housing prices as well as used cars and trucks contributed the most weight to the all items surge. A more promising sign for the economy, the energy index declined in December by 0.4 percent, ending a long series of increases that American consumers have felt most intensely at the gas pump in the last year.
With Federal Reserve Chair Jerome Powell advocating to remove the word “transitory” to describe recent inflation patterns from the economic lexicon, recognizing that it does not reflect reality, there’s a growing perception among the public that rising prices is no longer a temporary phenomenon.
Testifying before the Senate Committee on Banking, Housing, and Urban Affairs Tuesday, Powell warned that monetary policy is constrained in its power to curb inflation by the current “era of persistently low interest rates.” Ordinarily, the Fed can hike rates to slow down an overheating economy.
Recovering from the pandemic, the economy has rebounded well but a bit too fast for many moving parts to catch up to, Powell noted, as supply chains still struggle to meet demand across consumer sectors, resulting in inventory shortages on store shelves and prolonged shipping delays.
“The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation. We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation,” he said.