By: Shane Weston
January 16th, 2022
According to the new Labor Department report released this Wednesday, the consumer price index (which is used for identifying periods of inflation) rose to 7%. This is now the fastest increase Americans have seen since June of 1982 when inflation hit 7.1%.
The core inflation, which excludes food and energy, saw prices jump 5.5% in December.
Inflation has continued to rise since the pandemic as a significant portion of this is being driven by the mismatches between supply and demand. On the supply chain side, there has been persistent supply chain bottleneck, specifically in ports and warehouses throughout the country. While the demand side, has been led by high consumer demand.
This issue has to be managed by the Fed which already came out recently stating that there will be three or four interest rate hikes this year to fight inflation. The hike in interest rates usually creates higher rates for consumers and loans, which slows the overall economy by making them cut back on spending. In addition to this, the Fed has already began tapering and hope to have these large asset purchases completed by March.
As the Fed begins to let its actions develop, the hope is that it will start the road for its target inflation rate (2%).