WASHINGTON– The Consumer Price Index, which despite its name excludes the sometimes-volatile categories of food and energy, climbed 5.5% in December compared with one a year earlier, the highest rate since 1991.
However, on a monthly basis, the CPI increased a seasonally adjusted 0.5% in December from the preceding month, decelerating from October and November.
The numbers were included as part of the Labor Department’s December Consumer Price Index Report, which was released just one day after Fed Chairman Jerome Powell testified before the Senate during a session in which both Powell and members of the Senate spoke to the issue of ongoing inflation.
“Consumer prices continued to rise in December, reaching a record high we haven’t seen in 40 years,” said CUNA’s senior economist, Dawit Kebede. “Supply chain disruptions, high demand for goods that exceeds pre-pandemic trends, and labor shortages increased prices for most consumer items.
Prolonged Surge?
“A prolonged surge of the omicron variant may continue to push prices higher by worsening labor shortages and supply disruptions, which showed signs of improvement in December,” Kebede continued. “Recent price increases in housing contribute the most to overall inflation given their larger weight in household spending. This may show a shift from goods to services as the main driver of inflation moving forward.
“The Federal Reserve will most likely raise interest rates earlier than anticipated to control inflation. This is in addition to ending its support for the economy in the form of large asset purchases. This will raise the cost of borrowing for consumers and will reduce excess demand for goods.”
According to analysts, prices for autos and other durable goods continue to drive much of the inflationary surge, fueled by largely pandemic-related imbalances of supply and demand that most economists expect to fade as COVID-19’s impact on economic activity eases.
Tightness in Job Market
The release of the data comes on the heels of the December employment report signaled continued tightening of the job market, with the unemployment rate dropping to 3.9% from 4.2% in November. Average hourly wages rose 4.7% in December from a year earlier, well above the roughly 3% average increase before the pandemic.