President Joe Biden assured when these data became known, that some “progress” has been registered in the fight against inflation, when comparing monthly figures.
Consumer prices in the United States soared 7.0% in 2021, the highest rise since 1982, a major concern for President Joe Biden, who promised to stop this inflationary spiral.
Energy prices rose 29.3% and food prices 6.3%, according to the CPI index (CPI). If these volatile sectors are excluded, core inflation reached 5.5%, its highest level since February 1991.
President Biden assured when these data became known, that some “progress” has been registered in the fight against inflation, when comparing monthly figures.
In a statement, the president highlighted the progress in the report, which shows a significant reduction in inflation in the last month, with a drop in gasoline and food prices.
“Today’s report shows that we are making progress,” but “at the same time, (…) we have more work to do because price increases are still too high and put pressure on families’ budgets,” he said.
A public enemy
Inflation, which many economists, including those in the White House and the Federal Reserve, viewed as a transitory phenomenon, became “public enemy number one.”
The Fed’s inflation target stands at 2% per year, well below the record published on Wednesday.
In December, however, inflation slowed compared to November, to 0.5% from 0.8%, according to the consumer price index released Wednesday by the Labor Department.
But core inflation was higher in December than in November (0.6% versus 0.5% respectively).
The index that specifically measures energy prices “fell back in December” and thus ended with “a long series of increases,” the Labor Department statement said.
In December, it was mostly house prices and used cars that rose the most. Food products “also contributed” to the rise “although they rose less than in recent months,” the report noted.
Mismatch between supply and demand
The omicron variant of coronavirus could drive prices higher. The high number of infections leads workers to quarantine and thus hits the production and delivery of products, which in turn affects demand and pushes prices up.
Fed Chairman Jerome Powell, who had his Senate confirmation hearing on Tuesday for a second term at the head of the central bank, promised to act if record inflation persists into the second half of the year. The agency is willing to increase its rates more than expected.
If the inflationary push continues beyond the middle of 2022, “we will react accordingly,” Powell said.
“The return to normality will take time,” he warned however, at a time when the agency’s benchmark rates are close to zero.
“To ensure sustainable expansion (of the economy), we must have price stability,” Powell continued in his remarks to lawmakers.
Powell attributed most of the rise in inflation to a “mismatch” between supply and demand caused by disruptions in the supply chain.
And he emphasized that recovering price stability is a priority for the Fed.
The weight of wages
The Fed chief also described an economy with a labor market that is recovering “incredibly fast” from the crisis caused by the pandemic.
In fact, workers find jobs easily, to the point that each month millions of people quit to opt for a better career opportunity and a higher salary.
In December, unemployment in the United States fell to 3.9%, returning to its pre-pandemic level (3.5%), he observed, although he acknowledged that returning to work for some people remains difficult despite the large number of vacancies.
The higher wages that many employers offer to attract candidates or keep their employees fuel inflation. (I)
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