Annual inflation reaches 7.5 percent, highest rate since February 1982

Consumer prices rose 7.5 percent annually by the end of January, according to data released Thursday by the Labor Department, the fastest rate since February 1982. 

The Labor Department’s consumer price index (CPI), which tracks inflation, rose on an annual basis for the sixth consecutive month and above the 7.2-percent increase projected by a consensus of economists.

Consumer prices also rose 0.6 percent in January, the same rate as in December, after falling for three consecutive months.

Without food and energy prices, the CPI rose 6 percent annually, the fastest rate since August 1982.

The U.S. has faced high inflation since mid-2021 as a surprisingly strong rebound from the coronavirus recession also kindled price increases. While the U.S. economy added more than 6 million jobs last year, grew 5.7 percent and saw consumer spending return to pre-pandemic levels, the rush of demand collided with severe supply and labor shortages, shipping bottlenecks and other pandemic-related constraints.

Price hikes for food, electricity, and shelter contributed the most to January's inflation jump, the Bureau of Labor Statistics said Thursday. Food prices rose 0.9 percent in January, nearly twice December's gain of 0.5 percent, and energy prices also rose 0.9 percent as higher electricity rates offset declines in gasoline and natural gas prices.

Many economists, including top White House and Federal Reserve officials, expected inflation to cool off over the summer as the pandemic faded and more Americans returned to work. But the persistence of high inflation has posed significant political and policy challenges for both the administration and the central bank.

President Biden and Democratic lawmakers have struggled to sell the strength of the recovery to voters, who are increasingly dissatisfied with their handling of the economy, according to recent polls. The rising costs of food, fuel, and other consumer staples has wiped out rapid wage gains for many workers — along with the political benefit.

Food prices are 7 percent higher, gas prices are 40 percent higher, and energy prices in general are 27 percent higher than in January 2021, according to the Labor Department.

The Fed has also laid the groundwork to raise interest rates several times this year as inflation rises well above their annual average target of 2 percent. The bank all but formally confirmed it would raise interest rates in March from the current baseline, which was set near zero as the pandemic wracked the global economy in 2020.

Most Republican lawmakers and an array of economists had urged the Fed to begin hiking interest rates last year, though Fed officials resisted over concerns it would limit the return of workers to the labor force. The Fed, however, pivoted sharply in December as inflation continued to spike and pose potential threats to future job gains.

The January inflation figures will keep the Fed firmly on its path to hike interest rates, though higher borrowing costs may have little impact on the shipping bottlenecks, COVID-19 containment measures in other countries, and labor shortages driving prices higher.

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