US inflation at 40-year high, unabated | Business
WASHINGTON — Inflation has soared over the past year to its highest rate in four decades, hammering American consumers, reversing wage increases and bolstering the Federal Reserve’s decision to start raising interest rates. borrowing across the economy.
The Labor Department said Thursday that consumer prices jumped 7.5% last month from a year earlier, the biggest year-over-year increase since February 1982.
Measured from December to January, inflation was 0.6%, like the previous month and more than economists had expected. Prices rose 0.7% from October to November and 0.9% from September to October.
Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending have combined to send inflation skyrocketing over the past year. And there are few signs that it will slow down significantly anytime soon.
Wages are rising at the fastest rate in at least 20 years, which may push companies to raise prices to cover higher labor costs. Ports and warehouses are overwhelmed, with hundreds of workers at the nation’s busiest ports in Los Angeles and Long Beach falling ill in the past month. Many products and parts therefore remain in short supply.
The latest inflation data has suggested to some economists that the Fed could raise its key rate in March by half a percentage point, rather than its usual quarter-point hike.
James Bullard, president of the Federal Reserve Bank of St. Louis, told Bloomberg News that he supports a sharp increase of a full percentage point in the benchmark short-term interest rate by July.
Over time, higher rates will increase the costs of a wide range of borrowing, from mortgages and credit cards to auto and business loans. That could cool spending and inflation, but for the Fed, the move to steadily tighten credit could also trigger another recession.
Federal Reserve Chairman Jerome Powell signaled two weeks ago that the central bank would likely raise its benchmark short-term rate several times this year.
Stock prices fell after the release of the inflation report and fell further after Bullard’s remarks. The broad S&P 500 index fell 1.3% in afternoon trading. The yield on 10-year bonds jumped to 2.03%, a sign that investors expect more Fed rate hikes to come.
Prices for a wide range of goods and services accelerated from December to January – and not just for items directly affected by the pandemic. Apartment rental costs rose 0.5% in January, the fastest pace in 20 years. Electricity prices jumped 4.2% in January alone, the biggest rise in 15 years, and were up 10.7% from a year earlier. Last month, furniture and home supplies rose 1.6%, the biggest one-month increase on record since 1967.
Food costs, driven by higher prices for eggs, grains and dairy products, rose 0.9% in January. Prices for new cars, which surged during the pandemic due to a shortage of computer chips, remained unchanged last month but rose 12.2% from a year ago. Soaring new car prices have, in turn, accelerated used car prices; they rose 1.5% in January and are up a staggering 41% from a year ago.
“Just as price pressures in some areas are easing, inflation in other parts of the economy” is accelerating, said Sarah House, an economist at Wells Fargo. “The result is that inflation should remain uncomfortably high.”
Steadily rising prices have left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and a serious threat to President Joe Biden and congressional Democrats as the midterm elections loom later this year.
Among Americans struggling with more expensive food and gas is Courtney Luckey, who changed her shopping habits and took extra shifts at a grocery store in Charlotte, North Carolina, where she lives .
Luckey, 33, was able to fill a grocery cart for $100. Now, she says, $100 barely fills half the basket. Tomatoes fetched nearly $5 a pound, “which I think is ridiculous.” Luckey switched to canned tomatoes and started using coupons for Family Dollar and Food Lion.
To help pay her bills, she also racked up more hours at a Harris Teeter grocery store. But the store is 30 minutes from her house, so she had to spend more on gas.
All of his forced extra expenses caused Luckey to retire from family activities, such as bowling, with his daughter, brother, and two sons. These outings now typically occur once a month, rather than weekly or bi-weekly.
Over the past year, sharp increases in the prices of gasoline, food, automobiles and furniture have also upended the budgets of many other Americans. In December, economists from the Wharton School at the University of Pennsylvania estimated that the average household needed to spend $3,500 more than in 2020 to buy an identical basket of goods and services.
Small businesses have also struggled to cope with higher costs for supplies and labor.
Julio Ortiz, the owner of Gazpachos, which sells fruit cups, smoothies and coffee in Sacramento, said he needs to raise prices by about 6%, on average, in November. For some items, prices have increased by 10%.
“We have seen price spikes in fruits, vegetables, cups and plates,” he said. His company uses compostable packaging, but much of it comes from overseas and has been taped onto ships that have not been unloaded.
Even excluding volatile food and energy prices, so-called core inflation jumped 0.6% from December to January and 6% from a year ago.
Many large companies, in conference calls with investors, have said they expect supply shortages to persist until at least the second half of this year.
Chipotle said it raised menu prices by 10% to offset rising beef and transportation costs as well as higher employee wages. And the restaurant chain said it would consider further price increases if inflation continues to rise.
“We keep thinking beef will go up and then down, and that just hasn’t happened yet,” said John Hartung, the company’s chief financial officer.
Executives at Chipotle, as well as Starbucks and some other consumer-facing companies, said so far their customers don’t seem fazed by the price hike.
Levi Strauss & Co. raised prices last year by about 7% over 2019 levels due to rising costs, including labor, and plans to do so again this year . Even so, the San Francisco-based company has updated its sales forecast for 2022.
“Right now, every signal we see is positive,” CEO Chip Bergh told analysts.