January inflation numbers rose faster than expected to 7.5%, exceeding the previous record high set last December. High prices of consumer goods and services continue to hit American households in their wallets.
Sadly, there are no signs that inflation will come down sooner rather than later.
January Inflation Sets New 40-Year High
The Bureau of Labor Statistics released the latest Consumer Price Index monthly report last Thursday. At 7.5%, the January inflation rate set a new record high previously set last month.
While price increases happened all around, they were most felt in food, electricity, and shelter.
In fact, indexes for food and energy both gained each rose 0.9% from a year ago levels. In addition, the shelter index rose by 0.3%.
Meanwhile, the core consumer price index (CPI), which removes the volatile food and energy indexes, showed a 0.6% rise in January. This is similar to the inflation rate reported last December.
Indexes for household furnishings and operations went up by 1.5%. Used vehicles also rose by 1.5%, while medical care gained 0.7%. Also, apparel increased by 1.1%.
Fed Was Wrong About Inflation Being Transitory
Despite the Federal Reserve’s claims that inflation is a transitory phenomenon, prices of goods continue to rise. The agency was unable to factor in the effects of supply chain disruptions on the prices of the goods.
During the pandemic, almost all points of the supply chain reported problems. Problems rose from idle terminals due to COVID to worker and driver shortages to increased fuel costs.
Along each step, businesses had to pay more to get their goods flowing. The January inflation numbers show that even with the pandemic slowing down, prices are still going up.
In addition, while workers got substantial pay increases during the pandemic, inflation wiped out these gains. Except for those in the hospitality and leisure industries, many workers saw their pay actually shrink despite pay hikes.
Base Effect Also Affected January Inflation Numbers
Base effects can also play a part in the January inflation rates. Gould noted that “the current rate of inflation is being judged against January 2021”.
This is a time when fuel and other products recorded much lower prices due to low demand. This effectively amplified the January inflation rates.
Meanwhile, many economists think that the US has a long way to go before prices creep back down. Douglas Holtz-Eakin, a former economic adviser to former President George W. Bush said we shouldn’t expect anything this year.
“It doesn’t happen this year, it just doesn’t, and I think everyone needs to be honest about that,” he said. “[The Fed] is talking a big game, but they’ve had the foot on the accelerator for years now, and they haven’t done anything yet.”
Watch the CBS Evening News video reporting that consumer prices surge as inflation hits 40-year high:
What do you think of the continued rise in prices of goods and services? Do you think the January inflation rate will remain the peak inflation rate? Or, will the price continue to go up?
Tell us what you think. Share your thoughts in the comments section below.
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