U.S. inflation jumped 7.5% in the last year, a 40-year high

Consumer prices jumped 7.5% last month from a year earlier, the steepest year-over-year increase since February 1982, Labor Department says.

By CHRISTOPHER RUGABER

Associated Press

Feb. 10, 2022 Updated 12:37 PM PT

WASHINGTON — Inflation soared over the last year at its highest rate in four decades, hammering American consumers, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates.

The Labor Department said Thursday that consumer prices jumped 7.5% last month from a year earlier, the steepest year-over-year increase since February 1982. The acceleration of prices ranged across the economy, from food and furniture to apartment rents, airline fares and electricity.

When measured from December to January, inflation was 0.6%, the same as in the previous month and more than economists had expected. Prices rose 0.7% from October to November and 0.9% from September to October.

Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation leaping in the last year. And there are few signs that it will slow significantly anytime soon.

Wages are rising at the fastest pace in at least 20 years, which can pressure companies to raise prices to cover higher labor costs. Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the nation’s busiest, out sick last month. Many products and parts remain in short supply as a result.

Prices for a broad range of goods and services accelerated from December to January — and not just for items directly affected by the pandemic. Apartment rental costs rose 0.5% in January, the fastest pace in 20 years. Electricity prices surged 4.2% in January alone, the sharpest rise in 15 years, and are up 10.7% from a year earlier. Last month, household furniture and supplies rose 1.6%, the largest one-month increase on records dating from 1967.

Food costs — driven by pricier eggs, cereal and dairy products — increased 0.9% in January. Airfares rose 2.3%. New-car prices, which have jumped during the pandemic because of a shortage of computer chips, were unchanged last month but were up 12.2% from a year earlier. The surge in new-car prices has, in turn, accelerated used-car prices; they rose 1.5% in January and were up a dizzying 41% from January 2021.

“Just as price pressures in some areas ease, inflation in other parts of the economy” is picking up, said Sarah House, an economist at Wells Fargo. “The upshot is that inflation is likely to remain uncomfortably high.”

The steady rise in prices has left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and as a serious threat to President Biden and congressional Democrats as midterm elections loom later this year.

Among the Americans who are struggling with pricier food and gas is Courtney Luckey, who has changed her shopping habits and taken on additional work shifts at a grocery store in Charlotte, N.C., where she lives.

Luckey, 33, used to be able to fill up a grocery cart for $100. Now, she said, $100 barely fills half the cart. Tomatoes have reached nearly $5 a pound, “which I think is ridiculous.” Luckey has switched to canned tomatoes and has begun using coupons for Family Dollar and Food Lion.

To help pay bills, she’s also picked up more hours at a Harris Teeter grocery store. But the store is 30 minutes from her house, so she’s had to spend more on gas.

All her forced additional spending has caused Luckey to pull back on family activities, such as bowling, with her daughter, her brother and his two sons. Those outings now typically happen once a month, rather than every week or two.

Even excluding volatile food and energy prices, so-called core prices jumped 0.6% from December to January and 6% from a year earlier.

Stocks fell after the release of the report, with the benchmark Standard & Poor’s 500 index closing down 1.8%. The yield on the 10-year bond topped 2%, a sign that investors see more Fed rate increases ahead.

In the last year, sharp increases in the costs of gas, food, autos and furniture have upended many Americans’ budgets. In December, economists at the University of Pennsylvania’s Wharton School estimated that the average household had to spend $3,500 more than in 2020 to buy an identical basket of goods and services.

Thursday’s report will intensify pressure on the Fed and its chair, Jerome H. Powell, to tighten credit to try to slow the economy enough to cool inflation. Powell signaled two weeks ago that the central bank would probably raise its benchmark short-term rate multiple times this year, with the first increase almost surely coming at its next meeting in March.

With the latest inflation data, some economists expect the Fed to raise its key rate in March by half a percentage point, rather than its typical quarter-point hike.

Over time, those higher rates will raise the costs for a wide range of borrowing, such as mortgages, credit cards and auto and business loans. That could cool spending and inflation, but for the Fed, the risk is that in steadily tightening credit, it could trigger another recession.

Last week, the average rate on a 30-year fixed mortgage jumped to 3.69%, the highest level in more than two years, according to mortgage buyer Freddie Mac. Higher loan rates will elbow some would-be home buyers out of the market.

Many large corporations, in conference calls with investors, have said they expect supply shortages to persist until at least the second half of this year. Companies including Chipotle and Levi Strauss & Co. have also warned that they will probably raise prices again this year, after having done so in 2021.

Chipotle said it has increased menu prices 10% to offset the rising costs of beef and transportation as well as higher employee wages. And the restaurant chain said it will consider further price increases if costs keep rising.

“We keep thinking that beef is going to level up and then go down, and it just hasn’t happened yet,” said John Hartung, the company’s chief financial officer.

Executives at Chipotle, as well as at Starbucks and some other consumer-facing companies, have said their customers so far don’t seem fazed by the higher prices.

Levi raised prices last year by roughly 7% above 2019 levels because of rising costs, including labor, and plans to do so again this year. Even so, the San Francisco company has upgraded its sales forecasts for 2022.

“Right now, every signal we’re seeing is positive,” Chief Executive Chip Bergh told analysts.

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AP business writers Dee-Ann Durbin in Detroit and Anne D’Innocenzio in New York contributed to this report.