US inflation surges to a four decade record high

In December the US consumer price index grew to a 40 year record high, amounting to 7 percent year on year. This could push the Federal Reserve to raise interest rates early, the US Labor Department reported on Wednesday.

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The consumer price index (CPI) last month rose 0.5 percent from the previous month and 7 percent on a yearly basis. It is the highest 12-month rise since June 1982, according to the Bureau of Labor Statistics of the department.

Shelter costs and second-hand vehicle prices are major components of the inflation increase during the COVID-19 pandemic.

Used vehicle prices, due to supply chain constraints that have limited new vehicle production, rose another 3.5 percent in December, bringing the price to a 37.3 percent increase year on year.

The so-called core CPI, which excludes food and energy, rose 5.5 percent over the last 12 months, up from 4.9 percent over the 12 months ending November, the report showed. The energy index rose 29.3 percent over the last year and the food index increased 6.3 percent.

In December, the US consumer price index grew to a 40 year record high. Photo: GettyImages/Spencer Platt

Cause and effect

Some US lawmakers accused the Democratic Party of an excessively loose monetary policy last year to push up prices, and recent polls also reflected the dissatisfaction of the American people.

According to the consumer survey, with the persistence of high inflation, many Americans’ confidence in the economy has been hit. Intuitively, the financial pressure of American families has increased sharply, rising prices have basically offset the wage growth of many Americans, and the basic living expenses of low-income families are unsustainable. Polls show that inflation has even begun to take the place of the pandemic and incur wide concern.

Course of action

Federal Reserve Chairman Jerome Powell said they plan to raise interest rates more times and reduce its balance sheet faster to cope with the persistent high inflation. Many economists predict that the Federal Reserve may raise interest rates four times this year.

Raising interest rates may increase the borrowing cost of home purchase, car purchase and commercial loans, which will lead to an economic slowdown. However, the inflationary pressure in the United States is unlikely to ease soon.