The gauge the Labor Department released Wednesday showed that inflation accelerated at its fastest pace in nearly 40 years in December.
The bureau of labor statistics said the consumer price index increased by 7%. On a monthly basis, the consumer price index increased.
The measure was expected to increase by 0.4% from November and by 7 percent on an annual basis.
The increase was the fastest since 1982.
The stock market futures rose after the news but the government bond yields were mostly negative.
Brian Price, head of investment management for Commonwealth Financial Network, said that the December inflation report will be shocking for some investors as it has not been seen in nearly 30 years. This print was largely anticipated by many, and we can see that reaction in the bond market as longer-term interest rates are declining.
Excluding food and energy prices, the core inflation rate increased 5.5% year over year and 0.6% from the previous month. That was lower than estimates of 5.3% and 0.5%. It was the largest annual growth since 1991.
Shelter costs, which make up nearly one-third of the total, rose for the month and the year. The pace was the fastest in over a year.
The increase in used vehicle prices was 3.5% in December, bringing the increase from a year ago to 37.3%.
Energy prices fell for the month as fuel oil and gasoline fell. The complex as a whole rose 29.3% in the past year, including a gain of 49.6% for gasoline.
Federal Reserve officials are watching the inflation data closely and are expected to raise interest rates this year in an effort to combat rising prices and as the jobs picture approaches full employment. The central bank uses the personal consumption expenditures price index as its primary inflation measure, but policymakers take a wide range of information in making decisions.
The Fed has signaled a more hawkish approach and this morning's inflation read really only confirms that. The question remains if the Fed will pick up the pace given inflation is seemingly here to stay, at least in the medium-term. The impact on the supply chain and labor shortages could persist, which would only fuel higher prices.
Wage gains for workers have been affected by inflation. Real average hourly earnings increased by a small 0.1% in the month, as the total gain was offset by the headline increase. BLS calculations show that real earnings declined on a year-over-year basis.
Fed officials attribute rising inflation pressures to a shortage of workers in the area, which has caused supply chains to be in a state of disrepair. Paul Ashworth, chief U.S. economist at Capital Economics, wrote that the cold weather in the Northeast point to renewed upward pressure on food prices, despite signs that the omicron variant cases could peak soon.
Food prices rose in December and were up in the year.
The Fed is expected to start raising rates in March. Powell did not give any specific dates but he did say that rate hikes are on the way as long as current conditions persist.
The markets are pricing in a 79% chance for the first quarter-percentage-point increase to come in May, and a 50% chance that the Fed will hike four times in 2022, according to the FedWatch Tool.
All Rights Reserved © 2024
