The Bureau of Economic Analysis reported that a key measure of inflation rose by 5.8% between December 2020 and December 2021, the highest level in 40 years old, since 1982.
Energy prices alone increased by around 30% over the course of 2021, while food prices increased by 5.7%. After excluding these two components, the core CPI – the Fed’s preferred measure of inflation – rose 4.9% in the 12 months to last December. This was the fastest price increase on this scale since 1983.
For the month of December alone, prices increased by 0.4%, in decline from 0.6% in both October and November. Core prices also rose 0.5%, the same number recorded last November.
As prices have risen, U.S. incomes have also risen, albeit at a slower pace. Personal income increased 0.3%, or about $ 70.7 billion, last December, while the volume of disposable income increased only 0.2%, or about $ 49.9 billion.
This means that inflation is eroding the gains people have made in their salaries, according to Sal Gutierreh, chief economist at BMO.
Americans also spent less last December, and consumer spending actually fell for the first time in months, down by 0.6%. Real spending also fell by 1%. Retailers have been warning customers of supply chain disruptions and shortages, effectively dragging the holiday shopping season into November.
“With retailers doing a good job restocking store shelves late last year, we hope supply will be a little less problematic,” said Guaterie.
He added that the repercussions of the rapid spread of the omicron variant will likely make early 2022 difficult, also due to the expiration of the additional tax benefits for children.
He predicted that “consumer spending will struggle to achieve growth in the first quarter due to weak delivery, although it is expected to rebound in the second quarter supported by higher savings.” This is critical to the recovery, which could be hampered by the Micron earlier in the year, especially as consumer spending is such an important factor in US economic growth.
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