Consumer prices for U.S rose sharply in December as rental and used car costs maintained their robust gains, culminating in the greater annual acceleration of inflation in almost four decades, the 7,0%, and reinforced expectations of interest rate hikes from March.
The Chairman of the Federal Reserve (FED), Jerome Powell, said Tuesday that the central bank is ready to do what is necessary to prevent high inflation from “taking hold,” in testimony during his nomination hearing before the Senate Banking Committee for a second four-year term as head of the entity.
“The Fed will be forced to start raising rates in March and depending on political pressure, they will have to raise rates four or more times this year or maybe more next year,” he said. Chris Zaccarelli, chief investment officer of Independent Advisor Alliance.
The consumer price index (CPI) rose 0.5% last month after advancing 0.8% in November. In addition to the higher rents, consumers also paid more for food, although the 0.5% rise in food prices was less than in recent months, Reuters reported.
Gasoline prices fell 0.5% after rising 6.1% in both November and October. In the 12 months to December, the CPI increased 7.0%. It was the largest year-on-year increase since June 1982 and followed a 6.8% rise in November.
Economists polled by Reuters had forecast that the CPI would rise 0.4% and soar to 7.0% year-on-year. The economy is experiencing strong inflation as the coronavirus pandemic cripples supply chains. The high cost of living weighs on the approval rating of the President Joe Biden.
Inflation is well above the Fed’s 2% target and is also being driven by looming wage pressures. The government reported Friday that the unemployment rate fell to a 22-month low of 3.9% in December. Money markets are currently pricing in an 85% chance of an interest rate hike for March, and a total of at least three rises of a quarter of a percentage point by the end of the year.
In the 12 months to December, the so-called core CPI accelerated 5.5%. That was the biggest year-on-year increase since February 1991 and followed a 4.9% advance in November. The annual core CPI rate is expected to peak in February.