Consumer price growth exceeds 6% year-on-year for third straight month
The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 5.5% in December from a year earlier. This was a big increase from November’s 4.9 percent increase and the highest rate since 1991.
On a monthly basis, the CPI grew by 0.5% seasonally in December compared to the previous month, declining since October and November.
“There is still a lot in the economy. “Consumers and businesses are in great financial shape, and they are willing to pay for more goods, more services and more labor,” said Sarah House, Wells Fargo director and senior economist. Pointing out the reasons for the fast pace of inflation.”
Inflation in auto and other durable goods prices continues to rise, driven largely by pandemic-related imbalances of supply and demand, which most economists expect to fade as the impact of COVID-19 on economic activity Is.
Federal Reserve Board Chairman Jerome Powell said in Congressional testimony on Tuesday that he is optimistic that supply-chain issues will ease this year and help bring down inflation.
December’s inflation data also reflects the initial impact of the Omicron version, posing a new threat to the economy as the pandemic enters its third year.
Omair Sharif, founder of Inflation Insights LLC, said Omicron weighed in on prices for travel, entertainment and other personal services, although seasonal pricing trends are also contributing.
Gains in energy prices – which were driven by pandemic-related disruptions as well as weather and geopolitical factors – have shown flagging signs, with pump prices plummeting in December. However, food inflation remains high.
The Labor Department said December’s employment report indicated continued strength in the job market, with the unemployment rate down from 4.2% in November to 3.9%. The average hourly wage rose 4.7% in December from a year earlier, up from an average increase of about 3% before the pandemic.
This partly reflects a significant supply constraint: the pool of workers, especially those for low-paid work such as food services.
“We are seeing people re-sorting themselves into jobs they are better suited to or the ones they love. So the pay increase we are seeing is going to be in the lower quintile,” said Constance Hunter, chief economist at KPMG. “Overall, it’s good for the economy. But it helps maintain that upward price pressure.”
Wage increases are increasingly contributing to higher inflation not because they support higher spending, but also because they drive up costs for businesses. Many companies plan to pass on the higher labor and material costs to consumers.
In December, some 49% of small businesses said they planned to raise prices over the next three months, according to the National Federation of Independent Business, a trade association. This figure is slightly lower than in October and November, but close to the highest share since monthly records began in 1986.
The particularly rapid spread of omicrons has exacerbated labor shortages by increasing workplace absenteeism. Manufacturing companies are adopting costly measures to keep factories running so that they can meet the increasing demand. fedex Corporation
said this week that Omicron was causing staff shortages and delays in shipments.
John Merritt, vice president of Elaine Bell Catering in Napa, Calif., said staffing was an urgent issue when demand for weddings and other large events increased last June. The company increased wages by 50% to retain workers and hire new ones, but still had to rely on the services of temporary agencies. He said the company did not make profit last year due to increase in labor cost as well as rising prices of meat, cheese and wheat-based products.
“People often say” [restaurant and catering workers] There are low cost people. Well, our basic pay is now $30 an hour for the wait staff and we still can’t fill the positions,” he said. “This is going to be an ongoing problem. If we want to have quality employees for the events we do, we know we need to pay for it or we are not going to get them. “
The caterer has increased prices by 25% to 35% from pre-pandemic rates for the coming year. So far, customers are accepting the increase. “We have never raised prices that much from one year to the next. But we have never increased costs like this,” Mr. Merritt said.
There has been a boom in demand for autos, furniture and other goods during the pandemic, with tensions in supply chains and a huge increase in inflation. The most prominent example is the shortage of semiconductors that has hindered auto production, driving up prices for cars and trucks.
Despite Omicron’s disruptions, supply-chain problems are showing some signs of improvement. A December survey of manufacturers by the Institute for Supply Management showed a drop in prices and delivery times, indicating material shortages may be looming.
Mr Sharif of Inflation Insights expects used car and home goods prices to fall further in the coming months as consumers resume spending on services and reap the extra savings accumulated during the pandemic.
Economists also expect that price pressures from supply constraints will be replaced by higher rents and medical care costs that remain more persistent. Fares, which account for about one-third of the CPI, have started to pick up in recent months.
Ms. House of Wells Fargo said the extension of price pressures is another indication to gauge the continuation of inflation. He said the number of price categories experiencing inflation of 3% or more in the last one year has almost doubled since December 2020. That share is the highest since 1991.
High inflation has prompted some consumers to rein in spending.
Until recently, Pete and Sally McAllister grilled steak every Wednesday evening, but they recently switched to chicken chili due to the high cost of beef.
“The price we were paying [for filet mignon] From about $12 per pound to over $25. As a result, we’ve cut those foods out of our diets,” said Mr. McAllister, a 72-year-old retiree in Hilton Head, SC. ”Chicken and beans have been a good protein alternative to beef.”
He said he has stopped adjusting the thermostat upwards because of the rising cost of home heating and is going out of his way to find cheaper gasoline. Mr McAllister said he is playing less golf after several friends canceled golf club memberships to save money. “So there’s a mental price to inflation as well,” he said.
Write Gwynn Guilford at [email protected]