Consumer prices in the United States rose in January more than expected, so that the annual inflation rate climbed to a new high in the last four decades, hitting consumers hard.
According to a new report released Thursday Jan. 10 by the Labor Department, the consumer price index (CPI) rose 7.5% in January from a year earlier, the highest value recorded since 1982, when inflation reached 7.6%.
The inflation indicator rose 0.6% in January from the previous month, and was higher than economists expected, adding further urgency to the Federal Reserve’s plans to begin raising lending rates.
The abrupt increase in consumer demand from a massive government stimulus that put pressure on factories, coupled with supply problems due to a supply chain impasse linked to pandemic blockades, drove rapid price increases, with the resulting inflationary increase impacting wages as well.
Price acceleration varied across the economy, from food and furniture to apartment rents, airfares and electricity.
Wages are rising at the fastest pace in at least 20 years, which can put pressure on companies to raise prices to cover rising labor costs. Yet, wages are not keeping up with inflation.
Housing costs, which are considered a more structural component of the CPI and account for about a third of the overall index, rose 0.3% from the previous month and 4% on the year, according to AP.
Energy prices, while up 0.9% in January from the previous month, are 27% higher than last year. Gasoline costs 40% more on average than last year. Food rose 7% during 2021, while used car prices, a major component of the inflation increase, rose 40.5%.
The news of rising inflation was a setback for the Biden Administration and has become the biggest headache for the U.S. economy as well as a threat to congressional Democrats as elections loom.
“While today is a reminder that Americans’ budgets are being stretched in ways that create real stress at the kitchen table, there are also signs that we will make it through this challenge,” President Biden said in a statement following the report.
“My administration will continue to be all hands on deck to win this fight. We will continue to rebuild our infrastructure and manufacturing, so we can make more in America and strengthen our supply chains here at home,” he said near the end of the statement.