Inflation is at its highest level in 40 years as December prices rose 7 percent, compared to a year earlier
As a reaction to the COVID-19 pandemic and subsequent shutting down of the economy, Congress and the Federal Reserve responded with a wave of fiscal and monetary stimulus which was and remains without historical precedent.
Thus, we are in the midst of a fiscal and monetary experiment which has no direct antecedents. This renders all economic theories and financial forecasting hugely speculative.
As the second year of the pandemic fades away, Americans are experiencing the ravages of inflation. Prices, as depicted by the Consumer Price Index (CPI*), rose at the fastest pace in 40 years in December, increasing 7 percent over the same period a year ago, reported by the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services.
Correspondingly, calendar year 2021 will go down as the worst year for inflation since 1981, as broken supply chains and higher energy prices collided with high consumer demand for used cars and construction materials, according to the Washington Post.
The energy index rose 29.3 percent over the last year, and the food index increased 6.3 percent, according to U.S. Bureau of Labor.
Higher prices have permeated into just about everything American households and businesses buy, raising alarms for policymakers at the Federal Reserve and White House that inflation has spread throughout the greater economy, the Washington Post reported. Additionally, officials within the Federal Reserve and President Biden administration expect high inflation will persist through much of calendar year 2022.
Federal Reserve Chairmen Jerome Powell said it was essential to get prices down to more sustainable and stable levels to ensure a lasting recovery. “If inflation does become too persistent, if these high levels of inflation become too entrenched in the economy or people’s thinking, that will lead to much tighter monetary policy from us, and that could lead to a recession and that would be bad for workers,” Powell told Congressional lawmakers.
References:
- https://www.bls.gov/news.release/cpi.nr0.htm
- https://www.washingtonpost.com/business/2022/01/12/december-cpi-inflation/
- https://www.bls.gov/cpi/
- https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
* The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.