In December, US inflation rose 7% year-over-year, the fastest in almost 40 years.
The rises are being driven by strong demand and limited supply for crucial products such as autos, putting pressure on authorities to act. The Federal Reserve of the United States is likely to hike interest rates this year.
The rise in borrowing charges is aimed at decreasing demand by making purchases such as cars more expensive.
The increase in December was the third month in a row that the US annual inflation rate remained above 6%, considerably above policymakers’ objective of 2%. The last time inflation surpassed that amount was in 1982.
Housing costs increased by 4.1 percent year over year, while grocery prices increased by 6.5 percent, compared to a 1.5 percent yearly average for the previous ten years. The Labor Department’s report on Wednesday indicated that some of the pressures may be easing.
Energy prices fell 0.4 percent from November to December, the first dip since April. However, energy costs have risen about 30% in the last year and have resumed their upward trajectory in recent days.
President Joe Biden said the latest data “demonstrates that we are making progress in lowering the rate of price rises.”
He went on to say that the United States has “more work to do” and that “inflation is a global concern, appearing in nearly every industrialized country as it recovers from the current economic recession.”
Price pressures in the United States have been observed in many forms around the world.
In November, the Organisation for Economic Cooperation and Development (OECD), which represents more than 30 of the world’s top economies, said that inflation among its members had reached its highest level in 25 years.
In November, inflation in the United Kingdom reached a 10-year high, while prices worldwide are rising at their quickest rate since 2008, according to the World Bank.
While many countries are dealing with rising food and energy prices, the United States has experienced an exceptionally rapid rise in inflation.
This is due in part to increased demand from households, whose spending was boosted by government coronavirus aid during the pandemic and changed abruptly from travel to furnishings.
Economists in the United States were initially optimistic that as the pandemic faded, the pressures would relax. However, price hikes have been more persistent than projected due to continued production snarls and the development of viral variations.
Sarah House, an economist at Wells Fargo, believes that when the pandemic fades, inflation will no longer decline naturally, citing workforce shortages and wages, which have also been growing – though not as quickly as prices.
Despite other evidence of a solid economy, the issue has put pressure on the Biden administration, undermining consumer confidence.
Mr. Powell has promised to raise interest rates to keep inflation under control. However, he warned on Tuesday that these steps would only go so far in addressing the situation if supply chain concerns persisted, citing the dangers of future China shutdowns.
China’s official inflation numbers released on Thursday revealed that prices climbed less than predicted in November with producer prices rising 10.3% and consumer prices up 1.5%.
However, according to Gian Maria Milesi-Ferretti, a senior fellow at the Brookings Institution in Washington, this easing is not always indicative of what will happen elsewhere.