U.S. inflation rises to yet another 40-year high of 7%

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The U.S. inflation rate is at its highest level in 40 years and showing no signs of slowing down, new data revealed Wednesday.

The Consumer Price Index rose by 0.5 per cent in December alone, the U.S. Bureau of Labour Statistics reported, enough to push the annual inflation rate to seven per cent for the first time since 1982.

The figure was in line with what economists were expecting, but up from the previous 40-year high of 6.8 per cent in November.

Higher prices for shelter and for used cars and trucks were the largest contributors to the increase. Prices for used vehicles went up by more than 37 per cent last year. Prices are up mostly because a global shortage of semiconductor microchips has slashed the number of new cars that can be produced, which has caused many buyers to scramble to find used ones instead.

After being a major contributor to the upside for several months, energy prices decreased by 0.4 per cent in the month, as the price of gasoline and natural gas both came down from highs. On an annual basis, however, energy prices are up by about 29 per cent, and gasoline in particular is up by almost 50 per cent.

The high inflation rate presents a conundrum for the policy-makers at the Federal Reserve, who are bent on keeping interest rates low to help stimulate the economy due to the pandemic. But all that cheap lending is causing the price of just about everything to jump.

Rate hikes coming

Economist Sal Guatieri with Bank of Montreal said the numbers Wednesday were a harsh reminder to the Fed and everyone else of the threat that inflation poses. “Yesterday, [Fed] chair Powell warned that high inflation is a severe threat to the recovery, and that the Fed would need to act to prevent it from becoming entrenched,” he said.  

Economists expect the U.S. central bank will have to raise its benchmark interest rate as much as four times this year.

“He really didn’t need to remind anyone that the economy no longer needs aggressive stimulus, and today’s report will only reinforce the view that the Fed might have fallen well behind the curve, and may need to catch up in a hurry,” Guatieri said.



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