facebook linkedin twitter

A Key Inflation Gauge Rose 5.8% in 2021, Most in 39 Years

January 28, 2022by Christopher Rugaber, Associated Press Economics Writer
A Key Inflation Gauge Rose 5.8% in 2021, Most in 39 Years
High gas prices are posted at a full service gas station in Beverly Hills, Calif., Nov. 7, 2021. (AP Photo/Damian Dovarganes)

WASHINGTON (AP) — A measure of prices that is closely tracked by the Federal Reserve rose 5.8% last year, the sharpest increase since 1982, as brisk consumer spending collided with snarled supply chains to raise the costs of food, furniture, appliances and other goods.

The report Friday from the Commerce Department also said that consumer spending fell 0.6% in December. A wave of omicron cases discouraged many Americans from traveling, eating out or visiting theaters and other entertainment venues. At the same time, incomes rose 0.3% last month, providing fuel for future spending.

Stubbornly high inflation has hammered household budgets, wiped out last year’s healthy wage gains and posed a severe political challenge to President Joe Biden and Democrats in Congress. It also led the Federal Reserve to signal Wednesday that it plans to raise interest rates multiple times this year beginning in March to try to get accelerating prices under control.

Chair Jerome Powell also made clear that the Fed will move to shrink its huge $8.9 trillion of bond holdings soon after it starts raising rates, another step that will likely tighten credit, slow spending and potentially weaken the economy.


Speaking at a news conference Wednesday, Powell acknowledged that inflation has gotten “slightly worse” in the past month. He cautioned that higher prices “have now spread to a broader range of goods and services,” after initially affecting sectors of the economy, like factory-made products for homes, that were most disrupted by the pandemic.

Powell also said the Fed is increasingly focused on the question of whether rising wages are acting as a primary driver of inflation, by forcing companies to charge more to cover their higher labor costs. Such a “wage-price spiral,” which the United States hasn’t experienced since the 1970s, can make inflation difficult to cool.

The inflation figure that the government reported Friday is its personal consumption expenditures index. Though the consumer price index is a better-known barometer, the Fed tends to track the PCE in setting its interest rate policies. The PCE index tracks actual purchases consumers make each month, while the CPI follows a fixed market basket of goods.


Earlier this month, the government said the CPI jumped 7% last year, also the fastest pace in nearly four decades.

Prices have jumped in the past year as Americans have spent freely, helped by large stimulus checks in the spring and higher pay. Spending on autos, electronics and other goods jumped 12% in 2021, the government reported Wednesday, the biggest increase since 1946.

At the same time, bottlenecked supply chains and shortages of components, notably semiconductors, have left many retailers and auto dealers with fewer cars and other goods to sell. Powell has blamed mainly ongoing “supply and demand imbalances” for driving inflation.

On Thursday, McDonald’s said that while sales last year grew at a healthy pace, higher costs for food and paper products and the need to raise pay to attract and keep workers eroded profits even after it had raised prices 6% last year.

Likewise, Procter & Gamble said last week that it plans to raise prices for detergents like Tide, Gain, and Downy and for personal care products. The company anticipates price increases for chemicals and other commodities this year.


Higher prices may be weighing on some Americans’ willingness to spend. Still, last month’s drop in consumer spending is likely to be temporary. Americans are already showing signs of heading back out to restaurants and movie theaters as the huge jump in omicron infections has started to decline.

JPMorgan Chase says spending on its credit cards for hotels, travel, and entertainment venues has rebounded this month, after falling in December. Spending has risen more in states where COVID-19 cases have come down the most.

A+
a-

In The News

Health

Voting

Economy

May 17, 2022
by Reece Nations
California Fights Inflation With Relief Package, Minimum Wage Bump 

SACRAMENTO, Calif. — Californians are getting help addressing the costs of rising inflation through a higher minimum wage and a... Read More

SACRAMENTO, Calif. — Californians are getting help addressing the costs of rising inflation through a higher minimum wage and a new relief package proposal from Gov. Gavin Newsom. California's minimum wage will rise to $15.50 per hour next year under a state law passed in 2016... Read More

May 11, 2022
by Reece Nations
Biden Administration Taking Steps to Lower Farming, Food Costs

KANKAKEE, Ill. — President Joe Biden is blaming Russia’s invasion of Ukraine for supply chain disruptions that are causing yield-impairing... Read More

KANKAKEE, Ill. — President Joe Biden is blaming Russia’s invasion of Ukraine for supply chain disruptions that are causing yield-impairing fertilizer shortages and driving up food prices. The war’s repercussions have sent international food prices to record highs, according to United Nations data. The U.N.’s Food... Read More

May 6, 2022
by Dan McCue
New York’s Iconic One Times Square to Undergo $500M Facelift

NEW YORK — One of New York City’s most iconic locations, One Times Square, scene of the annual New Year’s... Read More

NEW YORK — One of New York City’s most iconic locations, One Times Square, scene of the annual New Year’s Eve ball drop watched by millions, is about to undergo a $500 million redevelopment. Jamestown, a real estate investment and management firm based in Atlanta, Georgia,... Read More

Echoes of 2006: Jazz Fest Returns to New Orleans for 2022

NEW ORLEANS (AP) — Once silenced by the pandemic, the New Orleans Jazz & Heritage Festival opens Friday for the... Read More

NEW ORLEANS (AP) — Once silenced by the pandemic, the New Orleans Jazz & Heritage Festival opens Friday for the first time in three years — a long awaited 2022 revival that holds echoes of 2006 when the annual celebration of music and culture went on... Read More

April 26, 2022
by Dan McCue
Business Events, Venues Still Struggling in Uneven Pandemic Recovery of Travel Sector

WASHINGTON — Despite the pent up desire of business travelers to once again attend conferences, conventions or trade shows, the... Read More

WASHINGTON — Despite the pent up desire of business travelers to once again attend conferences, conventions or trade shows, the business travel sector continues to struggle in this period of uneven recovery from the lingering, but far less problematic coronavirus pandemic. “Leisure travel is back, no... Read More

US, World Markets Retreat After Powell's Hawkish Rate Stance

NEW YORK (AP) — Wall Street was pointed toward losses before markets opened on Friday, following global shares lower after... Read More

NEW YORK (AP) — Wall Street was pointed toward losses before markets opened on Friday, following global shares lower after Federal Reserve Chair Jerome Powell indicated aggressive increases in interest rates were needed to fight inflation. The futures for the Dow industrials fell 0.3% while the same for... Read More

News From The Well
scroll top