U.S. consumer prices up 7% in December, setting a 40-year record

Prices on gas and other consumer good rose at the highest rate in 40 years in the U.S. last month as increased spending from Americans compounded supply chain worries.

Prices paid by U.S. consumers jumped seven per cent in December from a year earlier, the highest inflation rate since 1982 and the latest evidence that rising costs for food, rent and other necessities are heightening the financial pressures on America’s households.

Inflation has spiked during the recovery from the pandemic recession as Americans have ramped up spending on goods such as cars, furniture and appliances. Those increased purchases have clogged ports and warehouses and exacerbated supply shortages of semiconductors and other parts.

Gas prices have also surged, in part because Americans have driven more in recent months after having cut back on travel and commuting earlier in the pandemic.

Rising prices have wiped out the healthy pay increases that many Americans have been receiving, making it harder for households, especially lower-income families, to afford basic expenses.

Polls show that inflation has started displacing even the coronavirus as a public concern, making clear the political threat it poses to President Joe Biden and congressional Democrats.

On Tuesday, Chair Jerome Powell told Congress that the Federal Reserve was prepared to accelerate the interest rate hikes it plans to begin this year if it deems it necessary to curb high inflation.

Fed officials have estimated that they will raise their benchmark short-term rate, now pegged near zero, three times this year. Many economists envision as many as four Fed rate hikes in 2022.

Those rate increases would likely increase borrowing costs for home and auto purchases as well as for business loans, potentially slowing the economy.