Last December’s 7% inflation rate was the highest increase in 40 years. This is according to the newest report released by the Bureau of Labor Statistics. Across America, prices continue to go up as the pandemic shows no signs of slowing down.
December 2021’s Inflation Rate of 7% Highest In 40 Years
Prices gained by 7% in December compared to the same period in 2020. This is the fastest rate of increase in 40 years. This marks 2021 as the year where both the pandemic and high inflation rates banded together against the US economy.
In addition, prices went up by half a percent in December more than the previous month. While high, the inflation rate increase actually slowed down compared to previous months.
Taken on an annual basis, 2021 posted the highest inflation rate since the 1980s. The supply chain crisis, along with an ongoing labor shortage, failed to address high consumer demand.
Many items such as cars, construction materials, and even cream cheese were in short supply. This culminated in higher demand versus supply, which helped jack up prices.
Inflation Is Not Transitory
The steadily rising inflation rate sounded the alarm for the Federal Reserve and the White House. Earlier, both agencies insisted that inflation was transitory and will normalize once the supply chain normalizes.
However, as the third quarter of 2021 rolled in with prices still high, the Federal Reserve admitted they were wrong. Now, the US central bank is advancing its plans to raise interest rates and scale back on its bond-buying program.
Daryl Fairweather, chief economist for Redfin, doesn’t see things changing for the short term.
“We have to take a step back. We had extremely low inflation this time last year, so it’s not the end of the world that inflation is 7 percent. It would be very concerning if, next year, it was still 7 percent.
But we’re going to see some high inflation until the virus is not interrupting supply chains,” he said. In addition, he expected that Americans will need to change their spending habits to counter inflation.
High Inflation Rate Top Threat To The Economy
Apart from being a threat to recovery, runaway inflation is becoming a political albatross around the White House’s neck.
Republicans blamed the inflation fiasco for the Democratic administration’s loose monetary policy. The flood of stimulus money and low-interest rates overheated the economy, which pushed inflation rates high.
At the same time, the Federal Reserve is turning around on its loose monetary policies. Now, they will have to adopt a more hawkish approach, including raising interest rates at least thrice this year.
The agency will also advance its plans to reduce its balance sheet. This means accelerating its schedule to discontinue its bond purchase programs.
Watch the CNBC television video reporting that Inflation rises 7% over last year in December, highest in nearly 40 years:
What do you think happened in 2021 that led to higher inflation rates? Do you believe that the government can get the economy back on track this year?
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