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Inflation hit its highest level in 40 years at the end of 2021, a troubling development for President Biden and economic policymakers as rapid price hikes erode consumer confidence and cast a shadow of uncertainty on the market. future of the economy.

The consumer price index rose 7 percent during the year through December and 5.5 percent after excluding volatile prices such as food and fuel. The last time the main inflation index eclipsed 7% was in 1982.

Policymakers have spent months waiting for inflation to subside, hoping that supply chain problems could ease and allow businesses to catch up with soaring consumer demand. Instead, continuous waves of coronavirus have locked factories down and shipping companies have struggled to overcome protracted arrears as consumers continue to buy foreign products at a rapid pace. Forecasters expect price gains to weaken this year, but how quickly that will happen is unclear, posing a big economic policy question for Mr. Biden and the Federal Reserve.

“Obviously, 7% is a pretty big shock,” said Omair Sharif, founder of research firm Inflation Insights. He added that inflation could peak around 7%, but that it would take time to come back from that peak. It is likely to end 2022 lower, but still above the nearly 2% level that policymakers prefer.

“It’s just a lot of lumber to cut down to get through to anything near the good old days,” Sharif said.

New data released on Wednesday showed used car and food costs rising rapidly and provided further evidence that the price gains extend beyond a few categories disrupted by the pandemic. Rents continue to rise steadily and restaurant meals are more expensive, possibly a sign that recent wage increases are starting to push prices up as employers seek to cover costs. higher labor costs.

This increasingly widespread price increase – and seeping into areas not so directly affected by the pandemic – is a worrying development for economic decision-makers, who are now ready to respond. Federal Reserve officials have said they plan to hike interest rates several times this year as they try to cool demand and the economy in a bid to keep prices from exploding. pandemic era to become a permanent feature of the economic landscape.

Jerome H. Powell, Fed chairman, pointed out on Tuesday that the central bank was going into anti-inflation mode after nearly two years of trying to prop up the pandemic-stricken economy by holding interest rates close to zero. Officials expect price gains to slow significantly, but are closely watching how quickly this happens, taking into account the pace of rate hikes. Investors expect four rate moves this year, and policymakers have forecast three as of their December meeting.

Credit…George Etheredge for The New York Times

“If we see inflation persist at high levels for longer than expected, if we need to raise interest rates further over time, we will,” Powell told lawmakers at a hearing of the Senate Banking Committee Tuesday.

Fed officials are targeting a separate inflation index, the measure of personal consumption spending. CPI data released on Wednesday feeds into these numbers and is released earlier, which is why it is catching the attention of investors and policymakers.

Controlling inflation is primarily the job of the Fed, but raising prices is a political responsibility for Mr. Biden. Democrats are heading into a difficult midterm election year, in which they will fight to retain control of Congress. Republicans have increasingly accused Mr Biden and his party of pushing prices up by flooding the economy with too much money in 2021, including a third round of stimulus checks, and poll numbers from the president show the dissatisfaction of voters.

Inflation concerns also complicate Mr. Biden’s ability to push through his sprawling climate and social policy bill. Senator Joe Manchin III, the West Virginia Democrat who holds a key vote given his party’s very slim control over the Senate, cited the high prices as one of the reasons he will not support the legislation.

Mr Biden and his advisers have tried to put a positive spin on the numbers, while acknowledging the pain that price increases are causing to consumers. They point to the economy’s rapid rebound from the pandemic-induced 2020 recession, including falling unemployment levels. The administration is also trying to use its executive powers to alleviate supply chain problems and cut costs – pushing ports to extend their hours of operation and freeing up strategic oil reserves to help drive down the prices of gasoline. fuel – although most economists say these measures only help the periphery. .

On Wednesday, the administration pointed out that the monthly gain in headline inflation had declined slightly – to 0.5% from 0.8% in November – although the rise is still unusually rapid.

“This report highlights that we still have work to do, with price increases still too high and family budgets tight,” Biden said in a statement after the publication.

Policymakers and economists had initially hoped that the rapid price gains would fade quickly in 2021, and many still expect them to moderate through 2022. But economists are paying attention to a few factors that could cause prices to increase too quickly for more convenience.

Housing costs, based on how much it costs to rent a home, make up about a third of the consumer price index, so the fact that homeowners charge more will affect headline inflation.

“My hunch is that the pace of appreciation is going to be slower in 2022 than it was in 2021,” said Jeff Tucker, senior economist at Zillow. “But I don’t see the rents going down or becoming more affordable. “

Global supply chains also continue to experience disruptions that lead to shortages of parts and products and drive up the costs of a wide range of consumer goods.

Food prices rose 6.3 percent and clothing prices rose 5.8 percent in the year ending December. Used cars and trucks – a major factor in the price hike since last spring, as well as new vehicles – jumped 37.3%. Automakers are struggling to obtain parts – especially computer chips imported from Asia – delaying production of new vehicles and increasing demand for a limited supply of used vehicles.

Other disruptions could be in store. The Omicron variant of the coronavirus is causing labor shortages for factories, ports, trucking companies and warehouses in the United States and abroad. And recent lockdowns in China aimed at containing the coronavirus, inspired by the country’s continued adherence to a zero-tolerance policy regarding the pandemic, could exacerbate the chip shortage, among other supply chain issues.

“If they stick to their zero case doctrine, a global supply chain disaster is on the horizon,” said Tinglong Dai, professor of operations management at the University’s Carey Business School. Johns Hopkins, on China.

There have been early signs that grunts on shipping lanes and depleted stocks may be moderating, but many companies say they’ve seen little improvement.

The price of shipping a 40-foot container from Asia to the west coast of the United States hit $ 14,572 this week, down slightly from a peak of over $ 20,000 in September, but still close ten times more than two years ago, according to data from the Freightos group. .

The group’s data also showed that delivery times for ocean shipments from China to the United States hit a record 80 days in December, up 85% from 2019.

“Much of the tumultuous nature of the supply chain that has occurred over the past year continues, and sadly there isn’t much relief in sight,” said Douglas Kent, vice -Executive president of strategy and alliances at the Association for Supply Chain Management.

It became clear to Caroline McCroskey, 27, of Tulsa, Oklahoma, who handles marketing for a furniture maker that imports pieces from China and Cambodia and sells them to major retailers. The company saw a sharp increase in costs as the prices of shipping containers soared.

“Freight is pretty bad, but we’ve seen a dramatic increase in skins and fabrics in leather” as well as other raw materials including steel and foam, she said. “No one is feeling super optimistic that shipping rates will return to normal anytime soon.”

As it persists, high inflation has shaken the confidence of many Americans in the economy, according to consumer surveys.

Wall Street economists and analysts tend to focus on a price measure that excludes food and fuel costs as they jump from month to month, but these expenses count for household wallets. .

Gasoline prices moderated somewhat in December, providing some relief to consumers, but “home food” costs are rising and meal prices in limited-service restaurants have jumped. by 8% in 2021.

Jon Willow, 55, of Interlochen, Michigan, has seen grocery costs skyrocket since the start of the pandemic – so much so that she and her partner have tried to move away from purchased produce by highlighting preserving vegetables from their garden and heating their hen house during the winter so that their hens continue to produce eggs.

“We now have a no-home feed policy – we use everything,” she said, noting that they had saved tomatoes, squash and asparagus.

Sydney Ember contributed report.

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