It also wiped out American workers' pay increases and reinforced the Federal Reserve's decision that it would increase borrowing rates throughout the economy.
Thursday Labor Department reported that consumer prices rose 7.5% last month, a steepest increase year-over-year since February 1982. Prices rose across all sectors of the economy: food, furniture, electricity, and airline fares.
Inflation was 0.6% when measured between December and January. This is the same inflation as the previous month, but more than economists expected. Prices increased 0.7% between October and November, and 0.9% between September and October.
Inflation rose in the last year due to shortages of workers and supplies, high levels of federal aid, low interest rates, and strong consumer spending. There are no signs that inflation will slow down anytime soon.
Wages are rising at an rapid pace, which could lead to companies raising prices to pay higher labor costs. The nation's busiest ports are overcrowded with hundreds of workers in Long Beach and Los Angeles, who were out of work last month. As a result, many products and parts are still in short supply.
The pandemic caused a wide range of services and goods to see prices rise from December to January. This was not only for those items directly affected. The fastest rate of growth in 20 years was recorded in January for apartment rental prices, which rose 0.5%. The sharpest increase in electricity prices in 15 years was recorded in January, which saw a 4.2% jump. Electricity prices are also up 10.7% over a year ago. The largest single-month increase in household furniture and supplies since 1967 was 1.6%.
Food prices rose 0.9% in January, driven by higher prices for eggs, cereals, and dairy products. Airfare prices rose 2.3%. The pandemic caused by a shortage in computer chips has seen new car prices rise. However, they were unchanged last month and are now 12.2% higher than a year ago. The rise in new-car costs has accelerated the rise in used car prices. They rose 1.5% in January, and are up 41% compared to a year ago.
Sarah House, an economist at Wells Fargo, stated that "just as price pressures in certain areas decrease, inflation in others parts of the economy" has been increasing. "The bottom line is that inflation will likely remain unbearably high,"
Many Americans are finding it harder to pay for food, gas, rent and child care. Inflation is a major risk factor for the economy, and a serious threat to President Joe Biden as well as congressional Democrats in the coming midterm elections.
Courtney Luckey is one of the Americans struggling with higher prices for food and gas. She has made changes to her shopping habits and started working extra shifts at Charlotte's grocery store, where she resides.
Luckey, 33 years old, was once able to fill a grocery cart with $100. She said that $100 is not enough to fill half of the grocery cart. Tomatoes are now at $5 per pound. Luckey is switching to canned tomatoes, and she has started using Food Lion coupons and Family Dollar coupons.
She's been working more hours at Harris Teeter to help pay her bills. She has to drive 30 minutes to get there so she can spend more gas.
Luckey has had to cut back on family activities like bowling with her daughter, her brother, and their two sons. These outings are now more common once a month than once or twice a week.
Even accounting for volatile food and energy prices the core inflation rose 0.6% to January from December and 6% to January from a year earlier.
After the release of the report's findings, stocks fell and the broad S&P 500 index was down 0.6%. Investors expect more Fed rate increases as the yield on the 10-year bond rose to almost 2%.
The sharp rises in gas, food and furniture prices have also impacted many Americans' budgets over the past year. The University of Pennsylvania's Wharton School estimates that an identical product or service would cost a household $3,500 more in December than it did in 2020.
Thursday's report will increase pressure on Jerome Powell, Fed chair, to tighten credit in an effort to slow down the economy and cool inflation. Two weeks ago, Powell indicated that the central bank would likely increase its benchmark short-term interest rate multiple times this fiscal year. The first hike will almost certainly be at its March meeting.
Some economists believe that the Fed will raise its key rate by half a point in March, instead of its usual quarter-point increase.
These higher rates will eventually lead to increased borrowing costs, including for mortgages, credit cards, auto and business loans, as well as for mortgages, credit cards, and even for credit cards. This could help to cool inflation and spending, but the Fed is concerned that by steadily tightening credit, it could lead to another recession.
According to Freddie Mac, last week's average rate for a 30-year fixed mortgage rose to 3.69%. This is the highest level in over two years. Some would-be homebuyers will be pushed out by higher loan rates.
During conference calls with investors, many large corporations stated that they anticipate supply shortages to continue until the second half this year. The warnings came from companies ranging from Chipotle and Levi's, who also stated that they expect to raise prices this year after raising them in 2021.
Chipotle stated that it has increased its menu prices by 10% to offset rising beef costs and transportation costs, as well as the higher wages of employees. The restaurant chain also stated that it would consider price increases if inflation continues to rise.
John Hartung, chief financial officer of the company, stated that "we keep thinking beef will level up and then drop", but it hasn't yet."
The executives at Chipotle and Starbucks have stated that their customers are not affected by higher prices.
Levi Strauss & Co. increased prices by approximately 7% last year due to rising labor costs. They plan to do this again this year. The San Francisco-based company upgraded its 2022 sales forecasts.
Chip Bergh, CEO of Chip Bergh, stated that "right now, every signal which we're seeing" is positive.
