U.S. Inflation Hits a 40-Year High After a 7.5 Percent Rise

Consumer demand and supply chain limitations skyrocketed prices in January

The Labor Department announced Thursday that consumers prices rose 7.5 percent in January as compared to last year’s figure. This marks the steepest annual increase in prices since Feb. 1982. A combination of supply chain restraints, labor shortages, increased federal aid, lower interest rates, and higher consumer spending have led to a surge in inflation.

The December to January rise is not exclusive to goods and services directly affected by the pandemic, as apartment rental costs rose 0.5 percent to mark a 20-year high, electricity prices increased 4.2 percent during the month and 10.7 percent since last year—the most accelerated pace in 15 years, and household supplies and décor rose a staggering 1.6 percent, its most significant increase on record since 1967.

“Just as price pressures in some areas ease, inflation in other parts of the economy” is picking up, said Sarah House, a Wells Fargo economist. “The upshot is that inflation is likely to remain uncomfortably high.”

Food prices also saw an exponential rise, as eggs, cereal, and dairy products shot up. 0.9 percent in January. A national shortage of computer chips led to an annual cost increase by 12.2 percent, which resulted in a jump in new car prices, at 1.5 percent in the month’s span and a shocking 41 percent since last year.

The inflation numbers have been felt across the country, as many Americans have struggled to afford basic necessities such as child care, rent, gas, and food. The situation has posed itself a significant threat to President Joe Biden and congressional Democrats as midterm elections are on the horizon.

Gas prices marked the most notable rise in January, as they increased 9.5 percent as part of a 46.5 percent annual surge. Energy costs rose 0.9 percent for the month and 27 percent for the year.

The increase in food and housing prices has been thoroughly discussed, as Andrew Hunter, senior U.S. economist at Capital Economics said it “underlines our view that a rapid cyclical acceleration in inflation is underway and, with labor market conditions exceptionally tight, it is unlikely to abate any time soon.”

“While we still expect more favorable base effects and a partial easing of supply shortages to push core inflation lower this year, this suggests it will remain well above the Fed’s target for some time,” Hunter added.

An array of companies has addressed the rise in inflation, with executives as Starbucks and Chipotle have said their customers seem indifferent about the higher prices thus far.

John Hartung, Chipotle’s chief financial officer, touched on food costs by saying “we keep thinking that beef is going to level up and then go down, and it just hasn’t happened yet.”

The surge in inflation has led to stagnation in the earnings growth of workers. Average hourly wages have risen just 0.1 percent for the month, and the 0.6 percent inflation gain almost entirely shuddered the 0.7 percent monthly rise in wages.

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