Inflation Up Again in December to 40-Year High

Inflation Up Again in December to 40-Year High

U.S. inflation in 2021 was the highest since 1982, with December consumer prices up 7% from a year earlier, the Labor Department said Wednesday.

The announcement is bad news for consumers who are de facto taking a 7% wage cut.

Rhode Island economists have warned that this spiraling inflation is outpacing wage increases and has a detrimental impact on middle-class Rhode Islanders.

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

“There’s still a lot of scarcity in the economy. Consumers and businesses are in great financial shape, and they’re willing to pay up for more goods, more services and more labor,” said Sarah House, director and senior economist at Wells Fargo in an interview with the Wall Street Journal, pointing to reasons for the “blistering pace of inflation.”

Auto and durable goods price increases drove much of the numbers.

The Federal Reserve announced last month that is it looking for three increases to the prime rate in 2022 in an effort to stem inflation.

The Fed announced on December 15, “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but continue to be affected by COVID-19.”

“Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses, added the Fed.

December jobs numbers were a disappointment — the economy only added 199,000 jobs — economists were projecting 400,000 new jobs in December.