Prices jumped at the fastest rate in the past 40 years in December, gaining 7 per cent from one year ago, setting 2021 as the year of soaring inflation caused by the continuing coronavirus pandemic.
Prices also increased by 0.5 per cent in December compared to the previous month.
In reality, 2021 was the most challenging year for the inflation rate. In fact, since 1982, damaged supply chains have been battling the high need for used vehicles and building materials. As a result, the higher prices sank into almost everything that households and businesses purchase, triggering alarms for the Federal Reserve and White House policymakers that the effects of inflation have spread across the economy.
There’s no way to predict when prices will begin to fall to a more manageable level. The Fed and the Biden administration officials anticipate an increase in inflation that will last through the entire year 2022. The reality of this is pushing the Fed to take its most significant move to fight inflation by extending the timetable for possibly up to three rate hikes starting in March.
But these actions take place with a delay. Meanwhile, Fed leaders must get ahead of the consumer’s expectations of inflation, which could be self-fulfilling if consumers alter their habits now to prevent rising prices in the future.
Speaking in front of the Senate Banking Committee on Tuesday, Powell said it was essential to lower prices to an acceptable and stable level to guarantee sustained growth.
“If inflation does become too persistent, if these high levels of inflation become too entrenched in the economy or people’s thinking, that will lead to much tighter monetary policy from us, and that could lead to a recession and that would be bad for workers,” Powell stated to lawmakers.
There are many different ways that the soaring inflation has hampered sectors that had massive growth this year. The economy created an astonishing 6.4 million new jobs and surpassed expectations. The unemployment rate decreased to 6.3 per cent during Jan. up to 3.9 per cent during December. Rank-and-file workers’ pay increases were 5.8 per cent. The sweeping stimulus measures kept consumer demand strong despite several coronavirus waves.
The Fed is ultimately responsible for controlling inflation. However, it is also the case that the Biden administration has been making a lot of noise about its efforts to cut prices, including targeting the consolidation of companies and the release of strategic oil reserves to lower prices at the pump.
Democrats claim that their infrastructure and safety net plan will lower the cost for working-class families, which includes housing and health care, groceries and elder care, and child care and education. But talks fell apart due to the intractable situation between the Senate. Joe Manchin III (D-W.Va.) and the White House, leaving the Build Back Better plan in doubt.
“We continue to press for steps in working with Congress to do that — to do exactly that: to lower costs for the American people,” White House press secretary Jen Psaki told reporters on Tuesday. “That’s why we want to get Build Back Better done.”
Andrew Van Dam contributed to this report.