January 12, 2022 | 09:03
U.S. Consumer Inflation: "Entrenched"
Another month, another big and broad increase in the prices paid by American consumers. Inflation showed no sign of easing in December, and wage pressures will only fan the coals this year. The CPI jumped 0.5%, a little more than expected, lifting the annual rate to 7.0%, the highest since June 1982. While energy prices pulled back (temporarily), food costs rose another 0.5% and are up 6.3% y/y. A larger 0.6% leap in core prices, even picking up from the prior month's hefty gain, boosted the yearly core rate to 5.5% from 4.9%, the highest since February 1991. This was the sixth time in nine months that core prices have risen by at least 0.5%. The 3-month annualized core rate is a hefty 6.9%, though the six-month metric eased to 4.8%. As per the recent trend, very few things are getting cheaper (auto insurance, recreation). Meantime, rents continued to rise at a solid 0.4% pace, clothing prices warmed up another 1.7%, and airfares spiked 2.7%. Again, the heftiest price increases were reserved for the auto space, with used vehicle prices accelerating 3.5% in the month and 37.3% y/y, while new auto prices rose 1.0% m/m and 11.8% y/y. Medical care costs were up 0.3% for a second straight month, but remain subdued compared to most other areas.
Yesterday, 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 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. Over-heated demand is both aggravating supply shortages (including labour) and inflation pressures.