US inflation highest in 40 years, with no letup in sight
WASHINGTON, United States (AP) — Inflation soared over the past year at its highest rate in four decades, hammering American consumers, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates across the economy.
The Labor Department said Thursday that consumer prices jumped 7.5 percent last month compared with a year earlier, the steepest year-over-year increase since February 1982.
When measured from December to January, inflation was 0.6 percent, the same as the previous month and more than economists had expected. Prices rose 0.7 percent from October to November and 0.9 percent from September to October.
Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending, combined to send inflation leaping in the past year. And there are few signs that it will slow significantly anytime soon.
Wages are rising at the fastest pace in at least 20 years, which can pressure companies to raise prices to cover higher labour costs. Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the nation’s busiest, out sick last month. Many products and parts remain in short supply as a result.
The latest inflation data suggested to some economists that the Fed could raise its key rate in March by one-half a percentage point, rather than its typical quarter-point hike.
James Bullard, the president of the St. Louis Federal Reserve Bank, told Bloomberg News that he supported a sharp increase of a full percentage point in the benchmark short-term interest rate by July.
Over time, higher rates will raise the costs for a wide range of borrowing, from mortgages and credit cards to auto and business loans. That could cool spending and inflation, but for the Fed, the decision to steadily tighten credit could also trigger another recession.
Prices for a broad range of goods and services accelerated from December to January — and not just for items directly affected by the pandemic. Apartment rental costs rose 0.5 percent in January, the fastest pace in 20 years. Electricity prices surged 4.2 percent in January alone, the sharpest rise in 15 years, and are up 10.7 percent from a year earlier. Last month, household furniture and supplies rose 1.6 percent, the largest one-month increase on records dating to 1967.
Food costs, driven by pricier eggs, cereal and dairy products, increased 0.9 percent in January. New car prices, which have jumped during the pandemic because of a shortage of computer chips, were unchanged last month but are up 12.2 percent from a year ago. The surge in new-car prices has, in turn, accelerated used-car prices; they rose 1.5 percent in January and are up a dizzying 41 percent from a year ago.
The steady rise in prices has left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and as a serious threat to President Joe Biden and congressional Democrats as midterm elections loom later this year.