Consumer prices rose by 7 percent in December over the previous year, its fastest increase since the early 1980s, as companies raised prices to offset pandemic-driven supply chain issues — and also took the opportunity to increase profit margins on the back of brisk consumer spending.
The latest Consumer Price Index data, released Wednesday by the Bureau of Labor Statistics, marks the third consecutive month in which the index, a measure of what consumers pay for goods and services, rose by more than 6 percent.
“Today’s report — which shows a meaningful reduction in headline inflation over last month, with gas prices and food prices falling — demonstrates that we are making progress in slowing the rate of price increases,” President Joe Biden said in a statement released Wednesday morning. “At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets.”
Shelter, used cars and trucks were the biggest contributors to the price increase, along with food, the BLS said. Prices for housing rose 0.4 percent, used cars and trucks rose 3.5 percent, and food rose 0.5 percent, the largest contributors to the increase.
The “core index,” which excludes the more volatile food and energy, also rose, by 5.5 percent.
“Supply has not kept up with this rise in demand, and prices of goods have surged,” Moody’s Investor Services said in a report. “Supply disruptions, especially for semiconductors, have also contributed to shortages of high-ticket items such as new and used cars, and pushed up prices.”
In mid-December, the Federal Reserve announced it would likely raise interest rates three times in 2022, though it kept its benchmark rate near zero.
High inflation is a “severe threat,” Federal Reserve Chairman Jerome Powell said Tuesday during a Senate hearing for his second term at the head of the central bank. However, he was optimistic that supply-chain issues would ease this year and help reduce inflation.
Two-thirds of publicly traded companies are reporting greater profit margins now than they did before the pandemic, Sen. Elizabeth Warren, D-Mass., said during the hearing.
“Does that increase in profit margins, combined with greater market concentration in industry after industry, suggest to you that some corporations may be passing along increased costs and at the same time charging more on top of that to fatten their profit margins?” Warren asked Powell.
“That could be right, it could also just be though that demand is incredibly strong and they’re raising prices because they can,” Powell replied.
The December data reflects the initial impact of the omicron variant, which has a different effect depending on the sector: The highly contagious strain has already led to slightly lower prices for travel, recreation and other in-person services.