Inflation soared over the past year at its highest rate in four decades, hammering America’s 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 12 months earlier, the steepest year-over-year increase since February 1982. Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year.
When measured from December to January, inflation was 0.6 percent, the same as the previous month and more than economists had expected. Prices had risen 0.7 percent from October to November and 0.9 percent from September to October.
There are few signs that inflation will slow significantly anytime soon. Most of the factors that have forced up prices since last spring remain in place. Wages are rising at the fastest pace in at least 20 years. 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 steady surge in prices has left many Americans less able to afford food, gas, rent, childcare 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.
The Fed and its chair, Jerome Powell, have pivoted sharply away from the ultra-low-interest rate policies that the Fed pursued since the pandemic devastated the economy in March 2020.
Powell signaled two weeks ago that the central bank would likely raise its benchmark short-term rate multiple times this year, with the first hike almost surely coming in March. Investors have priced in at least five rate increases for 2022.