Pile of money with FED spelled in scrabble tiles

Inflation Surges to 7% in 2021, a 39-Year High, Interest Rate Hike Coming

In the final tally, US inflation rose to 7% in 2021 — a 39-year high — while compounding the matter is the supply chain issue leading to shortages, as the Federal Reserve is expected to hike interest rates sooner than projected.

Inflation Reaches 7%, Highest Level Since 1982

Over the past year, the US consumer price inflation index (CPI) rose to a total of 7% year-over-year, not slowing during the last month of 2021, according to a report by the Labor Department released on Wednesday.

The rise of inflation marked a 39-year high, the steepest price climb since June 1982, according to the latest report by the Bureau of Labor Statistics.

The rate climb also surpasses the previous increase set in November at 6.8%, hitting the mark higher than economists had predicted, CNN Business reported.

In another measure, the so-called core CPI, which excludes food and energy, was up 5.5% year-over-year, the largest growth since February 1991, CNBC reported.

What Prices Increased the Most?

Energy prices skyrocketed over the year, but fell fractionally in December. Year-over-year, energy prices saw an increase of 29.3%, with gasoline skyrocketing 49.6%.

Energy prices fell slightly by a mere 0.4% in December, with fuel oil down 2.4% and gasoline taking a minuscule decline of 0.5%.

Used vehicle prices saw sharp increases, climbing 37.3% from a year ago, with 3.5% of the total from December alone. The major factor in the spiraling prices is attributed to supply chain constraints due to limited vehicle production throughout the pandemic.

The cost of shelter, which makes up nearly one-third of the total, climbed 4.1% for the year, the fastest pace since February 2007.

Will the Federal Reserve Raise Interest Rates?

As inflation appears to snowball, experts believe this is setting the stage for the Federal Reserve to raise interest rates as soon as March, according to Bloomberg. A few months ago, the Fed projected a longer timeline to elapse before a sharp policy adjustment would be needed.

However, the market itself had expected a move by the Fed in March.

Chief US economist at Barclays PLC, Michael Gapen, said on Bloomberg television: “I don’t really think anything stops them going in March except one of these kind of outlier events.”

“What we have now is a mismatch between demand and supply,” Federal Reserve chair Jerome Powell told the Senate banking committee on Tuesday. “We have very strong demand in areas where supply is constrained, particularly around goods, particularly around things like cars.”