This archive report was first published on 23 December 2021.
High inflation has been a major concern for the US economy, and the latest data suggests that it may be here to stay. The Personal Consumption Expenditures price index, which is the measure used by the Federal Reserve to gauge inflation, rose 5.7% in November from a year earlier, the highest level since 1982.
The sharp increase in inflation has left policymakers and economists trying to assess what will happen in 2022. Rapidly rising prices are lasting longer than expected and have become broader in recent months, affecting categories like rent, which can last longer.
Andrew Hunter, senior US economist at Capital Economics, said that consumers are able to purchase less because prices are rising, and that is starting to put the brakes on real spending growth. He added that inflation is likely to remain higher than the Fed wants for a while.
The inflation data released on Thursday came alongside data on incomes and spending that showed consumers saved less in November and that their consumption barely budged after adjusting for inflation. This could simply be a sign that consumers did their holiday shopping early amid supply chain snarls.
However, the United States could end up in an unpleasant situation in which growth is less robust while inflation is still high. Fed officials expect inflation to ease to 2.6% by the end of next year, but that would remain substantially above their 2% goal.
President Biden said at the White House that high inflation is a devastating thing for people who are working class and middle-class, adding that it really hurts. The administration is trying to pull what levers it can, including increasing the supply of oil and gasoline and trying to keep ports open longer in an effort to clear shipping backlogs.
Jerome H. Powell, the Fed chair, said that while the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services. He suggested that if prices remain uncomfortably high, the Fed will do more to keep them under control.
