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Tuesday, January 25, 2022

US inflation rate hits near 40-year high


Prices in the US are rising at their fastest rate in almost 40 years, with inflation up 7% year-on-year in December.

Strong demand and limited supply for key items such as automobiles are driving the price increases, putting pressure on policymakers to act.

The Federal Reserve of the United States is expected to raise interest rates this year.

Borrowing costs are rising in order to reduce demand by making purchases such as cars more expensive.

The increase in December marked the third month in a row that the US annual inflation rate has been above 6%, well above policymakers’ target of 2%. The last time inflation exceeded that level was in 1982.

The Labor Department’s report on Wednesday indicated that some of the pressures may be easing.

Energy prices fell 0.4 percent from November to December, the first drop since April. However, over the past year, energy costs have risen by nearly 30% and have recently resumed their upward trend.

“Overall, this is every bit as bad as we expected,” Capital Economics chief economist Paul Ashworth said of the December inflation report.

Economists initially predicted that inflation would be transitory and would subside as the pandemic faded. However, ongoing production snarls and staff shortages caused by virus variants have made price increases more persistent than expected.

“The supply-side constraints have been extremely persistent and long-lasting,” Federal Reserve Chair Jerome Powell told Congress on Tuesday. “We’re not seeing the kind of progress we expected by now.”


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