The United States consumer price index surges 7% in 2021, the biggest year-on-year increase since June 1982.
“The Fed is going to be forced to begin raising rates in March and depending on the political pressure on them – from both sides of the aisle – they are going to have to raise rates four or more times in this year and potentially more than that next year,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
Last month’s inflation readings were in line with expectations. Rising inflation is also eroding wage gains. Inflation-adjusted average weekly earnings fell 2.3% on a year-on-year basis in December. Inflation is well above the Fed’s flexible 2% target. It is also being lifted by budding wage pressures as the labor market tightens. The unemployment rate fell to a 22-month low of 3.9% in December. Markets have priced in an about 80% chance of a rate hike in March, according to CME’s FedWatch tool.
Stocks on Wall Street were trading higher amid relief that the increase in prices was as expected. The dollar fell against a basket of currencies. US Treasury prices rose.Economists believe the year-on-year CPI rate probably peaked in December or will likely do so by March. There are signs that supply bottlenecks are starting to ease, with an Institute for Supply Management survey last week showing manufacturers reporting improved supplier deliveries in December.
Prices for used cars and trucks accelerated 3.5% after increasing 2.5% in each of the prior two months. The surge likely reflects Hurricane Ida in late August and early September, which destroyed thousands of motor vehicles among other property.
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