By cutting food and energy costs, which are more volatile even in non-pandemic times, inflation rose to 5.5% between December 2020 and December 2021 — the biggest annual jump since February 1991. That was a much faster pace than in November , when core inflation stood at 4.9%.
For the month of December alone, prices rose by 0.5%, adjusted for seasonal variations. It was slightly more than economists had predicted, but down from the monthly rise of 0.8% in November.
What has become more expensive?
Price followers for both homes and used cars and trucks were the main contributors to the price increases in December.
Food costs also rose – by 0.5% – but at a slightly slower pace than in recent months. Prices rose in almost all major supermarket categories, with fruit and vegetable prices rising the most.
Energy costs fell 0.4%, the first monthly decline since April 2021. But the decline is unlikely to last until 2022.
“Unfortunately, energy prices recovered in January after a temporary Omicron hit in December,” said Action Economics chief economist Mike Englund.
What does this mean for inflation in the new year?
First of all, inflation will not just disappear in 2022.
While monthly price gains may continue to moderate, it will take some time for the 12-month data to reflect that.
Englund believes that this longer-term inflation data will continue to show an upward trend until at least February, with data to be released in March.
“We know that high inflation is taking a toll, especially on those who are less able to cover the increased costs of essentials such as food, housing and transportation,” Powell said in comments released ahead of his hearing on Tuesday.
Maintaining prices is one of the central bank’s two mandates (the other being maximum employment). Rolling back the stimulus measures, raising rates and eventually winding down the huge balance sheet are steps to contain inflation. And Thursday’s data gave the Fed no reason to take a breather.
Kristalina Georgieva, director of the International Monetary Fund, believes inflation will be one of the key issues of 2022. We must “recognize that inflation is a serious problem in many countries, both economically and socially,” she told DailyExpertNews’s Richard Quest on Wednesday. .
“Central banks like the Fed are right to act. But they have to walk a thin path. They have to protect the economy while fighting inflation,” she said.
–Matt Egan contributed to this report.