Inflation Spiked Another 7% In December—Hitting New 39-Year High As Fed’s Price Concerns Rattle Markets

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Consumer prices rose 7% in the 12 months ending in December, according to data released Friday by the Labor Department, ticking up only slightly after a massive surge in recent months but still marking the highest reading in nearly 40 years.

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking, Housing, and … [+] Urban Affairs Committee confirmation hearing in Washington, D.C., on Tuesday.

Key Facts

Overall prices rose 0.5% from November—higher than the 0.4% economists were expecting, but down from the previous month’s increase of 0.8%.

Despite the monthly decline, prices jumped another 7% last month on a yearly basis, the largest annual increase since June 1982.

The overall increase was the result of broad gains across most consumer goods and services, the government said, pointing to rising prices for shelter, food and used cars as some of the largest contributors.

The decades-high inflation figure comes one day after Federal Reserve Chair Jerome Powell testified before Congress that the central bank will clamp down on stimulus measures to prevent higher inflation from becoming entrenched, saying: “If we have to raise interest rates, we will.”

The core price index, which excludes volatile energy and food prices, rose 0.6% over the last month—up from 0.5% in November.

In a promising sign, however, recently hot gasoline prices cooled down last month, pushing overall energy prices down about 0.4% in December after rising as much as 4.8% in the past six months.

Key Background

Trillions of dollars in unprecedented government spending helped keep the economy afloat during the pandemic, but levels of historically high inflation have rattled the market in recent months—and even more so in the new year. After rising 27% in 2021, the benchmark S&P 500 index is down more than 3% so far in January. Bank of America and Morgan Stanley are among the Wall Street investment banks that have warned inflation—and not the pandemic—is now the biggest risk to the market. The Federal Reserve, meanwhile, has started to taper, or reduce, its accommodative monetary policy efforts in an effort to combat rising prices, and it forecasts three interest rate hikes this year. In a note to clients on Monday, however, Goldman Sachs analysts said they expect the Fed will be forced to raise rates, which tend to hurt corporate earnings and stock returns, four times this year in order to help curb inflation.

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