Inflation rose 7% over the course of 2021 in the United States, the largest increase since 1982. The United States Labor Department released a survey of the country’s consumer price index on Wednesday, finding that the cost of goods has increased by 7%, with a monthly increase of roughly 0.5%.
This surge constitutes the fastest increase in CPI over the past 40 years, caused by a scarcity of goods and workers and a huge amount of cash flowing into the nation’s economy from Congress and the Federal Reserve.
Stock prices rose after the CPI released its report, as the news was anticipated by many investors:
“The December CPI report of a 7% increase over the last 12 months will be shocking for some investors as we haven’t seen a number that high,” said Brian Price, head of investment management at Commonwealth Financial Network. “However, this print was largely anticipated by many, and we can see that reaction in the bond market as longer-term interest rates are declining so far this morning.”
Not counting food and energy prices, which CPI refers to as its “core” prices, the cost of goods increased 5.5% over the year and 0.6% over the past month. Economists had predicted these figures to increase by 5.4% and 0.5%, respectively. This is the largest annual growth for core inflation since February 1991.
Investors brace for “medium-term” inflation
“This morning’s CPI read really only solidifies what we already know: Consumer wallets are feeling pricing pressures and in turn, the Fed has signaled a more hawkish approach. But the question remains if the Fed will pick up the pace given inflation is seemingly here to stay at least in the medium-term,” said Mike Loewengart, who is the managing director for investment strategy at E-Trade.
“With Covid cases continuing to rise, the impact on the supply chain and labor shortages could persist, which only fuels higher prices.”
Earlier in November, the Federal Reserve officially stated that inflation was “elevated” while the agency stated that it would back off on its $120 billion per month of asset purchases. However, officials from the central bank of the US stated that the inflation that is now widespread in the country will be only “transitory.”
The increase in prices for durable goods is partially due to the gigantic bottlenecks for new vehicles, with supply-chain issues stemming from a lack of computer circuit boards being the primary reason why consumers are forced to wait months for the delivery of vehicles.
Brad Armstrong, a partner at Lovell Minnick Partners, stated “We’re seeing early signs of an inflationary surge that’s likely to persist, with companies responding to rising input costs with cost increases of their own, which in turn causes higher input costs for others. It’s a cycle that repeats itself.”