Inflation Speeds Up Again in January, Vaulting to Fresh 40-year High
Inflation Speeds Up Again in January, Vaulting to Fresh 40-year High

By Tom Ozimek

Inflation in the United States picked up its pace once again, accelerating to an annual 7.5 percent in January, the highest rate in 40 years and above analysts’ expectations, according to data released by the Bureau of Labor Statistics (BLS).

January’s acceleration in the Consumer Price Index (CPI), which reflects inflation from the perspective of end consumers, marks the eighth straight month of prices rising faster than 5 percent year-over-year and a faster pace than December’s 7.0 percent pace.

On a month-over-month basis, the pace of headline CPI inflation held steady at 0.6 percent in January, matching December’s pace and delivering a fresh sign of inflation stuck in high gear.

Consensus forecasts predicted a 7.3 percent rate of annual CPI and a 0.5 percent reading in the monthly measure.

Inflation Risks ‘Tilted to the Upside’

Not only is January’s annual pace of CPI inflation the highest since February 1982, when it hit 7.6 percent, it is also far above the Federal Reserve’s target of 2 percent as reflected in a separate but related inflation gauge, pressuring policymakers to tighten loose monetary settings to knock some of the wind out of surging prices.

“Inflation readings in the U.S. are at their highest levels in nearly 40 years, and nominal wages are accelerating at a faster pace than we have seen in decades,” Loretta Mester, president of the Cleveland Fed and a voting member of the Federal Open Market Committee (FOMC), said in prepared remarks on Wednesday for a virtual event hosted by the European Economics and Financial Centre.

Noting that inflation risks are “tilted to the upside,” Mester said she backs raising the Fed’s key interest rate in March.

“While the Omicron variant may weigh on activity in the near term, the high levels of inflation and the tightness in labor markets make a compelling case to begin recalibrating the stance of monetary policy,” she said.

Wages have shot up in the United States, adding to fears of a possible wage-price spiral of the sort that bedeviled the U.S. economy in the 1970s. Average hourly earnings of all private-sector employees rose by an annual 5.7 percent in January, which was the highest on record with the exception of a sharp, one-month increase in wages in April 2020. That’s when millions of relatively low-paid workers lost their jobs while their relatively high-paid counterparts remained employed, with the structural shift in employment composition leading to a boost in average wages.

In her speech, Mester touched on the risk of a wage-price spiral, saying that if longer-term inflation expectations become de-anchored, price pressures could stay elevated for even longer.

“Allowing inflation to remain at high levels can lead firms, households, and financial market participants to expect higher inflation over the longer term. A rise in longer-term inflation expectations could then spill over into wage- and price-setting dynamics, leading to even more persistent inflation,” she said.

While, like other Fed policymakers, Mester expects some improvement in inflation readings later in the year as supply-side constraints ease and demand softens, she said that there was uncertainty around their timing and magnitude.

Markets expect a Fed rate hike in March, with the CME’s Fed Watch tracker indicating a 75 percent chance that the central bank will announce a 25-basis-point rate increase at the FOMC’s March meeting, and a 25 percent chance for a larger, 50-basis-point rise.

While Mester said the economic data doesn’t make a “compelling case” for a 50-basis-point hike in March, she stressed it was time for the Fed to roll back accommodative monetary policies more aggressively. She added that each FOMC meeting is going to be “in play” and the pace of rate hikes will depend on what happens with inflation and the economy.

Markets are pricing in five rate hikes through 2022.

Underlying Inflationary Pressures Rise

Meanwhile, so-called core CPI inflation, which strips out the volatile categories of food and energy and is considered a better measure of underlying inflationary pressures than the headline CPI figure, also picked up its pace in January.

Core inflation rose to an annual 6 percent last month, after December’s 5.5 percent pace, BLS data showed. Month-over-month core inflation hit 0.6 percent, compared to December’s 0.5 percent pace. Consensus forecasts called for a 0.5 percent rise in the monthly reading and a 5.9 percent pace of annual core inflation.

“The price pressures on households just don’t end,” Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement.

“Not only have home prices jumped 20 percent in the past year, but now many rents are too, rising 0.5 percent in the past month alone. Nothing squeezes household budgets more than the outsized increases we’re currently seeing on costs for shelter and housing,” he added.

McBride said Fed moves to dial back easy money settings would take some wind out of demand but do nothing to fix the supply-side constraints, suggesting inflationary pressures would take longer to lose steam.

Affiliate News Feeds

  • Reuters
  • Washington Examiner
  • The Federalist
  • The Epoch Times
  • The Guardian
  • The Gateway Pundit
  • Judicial Watch

By Jack Phillips The CEO of Spotify joined Twitter owner Elon Musk Wednesday in criticizing Apple over its App Store rules, claiming the firm only acts in its own self-interest. In a… [...]

By Joseph Lord House Democrats on Nov. 30 voted for Rep. Hakeem Jeffries (D-N.Y.) to replace Rep. Nancy Pelosi (D-Calif.) as the party’s top leader in the lower chamber. Democrats gathered behind closed doors… [...]

A trend of increasing governing trifectas may point to a decrease in bipartisanship across the country at the state level. [...]

EXCLUSIVE — U.S. air marshals are planning to stage an open rebellion against the Biden administration over a plan that would strip 99% of commercial flights from federal protection as… [...]

Their unconditional warmth reminds us of the Christ child, whose indiscriminate love for the world is reflected by the best things about friendly babies. [...]

Congressional Republican leaders are working with their Democrat cohorts to pass a taxpayer-funded spending bill before the end of the year. [...]

House Democrats on Nov. 30 voted for Rep. Hakeem Jeffries (D-N.Y.) to replace Rep. Nancy Pelosi (D-Calif.) as the party’s top leader in the lower chamber. Democrats gathered behind closed… [...]

American Legislative Exchange Council will host its 49th Annual Meeting from Nov. 29 to Dec. 1 at The Grand Hyatt in Washington, DC. The three-day meeting will discuss critical issues… [...]

Guardian unpicks complex web of investment firms, wealth funds and tax haven-based businesses that own most of sectorEngland’s water: the world’s piggy bankCan global water investors be held to account?England’s… [...]

Former lady-in-waiting to queen issues apology after Ngozi Fulani questioned over where her ‘people’ came fromThe late queen’s lady-in-waiting has resigned and apologised after a black guest at a reception… [...]

On Tuesday, Governor Kristi Noem (R-SC) signed an executive order prohibiting the use of the China-controlled app TikTok by state agencies, workers, and contractors using state devices due to national security… [...]

Joe Biden’s energy advisor Amos Hochstein appeared on CNBC’s “Squawk Box” Wednesday morning to discuss the Regime’s plan to phase out oil. Of course the elites will still be using… [...]

Though years ago India passed a sweeping law giving transgender people rights—and prohibiting discrimination in education, employment, and healthcare—the Biden administration is spending American taxpayer dollars to counter stigma and… [...]

(Washington, DC) – Judicial Watch announced today that it filed a Freedom of Information Act (FOIA) lawsuit against the Department of Homeland Security (DHS) for all communications between the Secret… [...]

NH Politician

NH POLITICIAN is owned and operated by USNN World News Corporation, a New Hampshire based media company specializing in the collection, publication and distribution of public opinion information, local,...