Consumer prices rose by 7% in 2021, the largest 12-month increase since 1982, the Labor Department announced Wednesday. On a monthly basis, the consumer price index (CPI) was up by 0.5% in December, easing a bit from the 0.8% recorded in November and 0.9% recorded in October.
Despite the relative slowing at the end of the year, many economists expect the elevated level of inflation to continue for a while. “The breadth of gains in recent months gives inflation inertia that will be difficult to break,” said Sarah House of Wells Fargo. “We expect the CPI to remain close to 7% the next few months.”
Increases in the price of goods was the main driver of inflation in 2021 — excluding volatile food and energy, the commodity price index jumped 10.7% last year, the largest increase since 1975 — but wages and housing costs are expected to account for a greater share of price increases in 2022. “Sure, there will be goods categories that cool off once supply bottlenecks begin to ease later this year, but at the same time, the pressure from wages to prices is only going to ramp up,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note to clients.
Democrats eye agenda: President Joe Biden said in a statement that the report shows that his administration is making progress in its efforts to combat inflation, and highlighted the strength of the U.S. recovery from the Covid-19 pandemic. “At the same time,” he added, “this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets.”
Politically, the report could be a problem for Democrats, heightening concerns that inflation is getting out of hand — a worry that could weaken support for the president’s Build Back Better package. Sen. Joe Manchin (D-WV), who has criticized the bill for its potential to contribute to inflation despite assurances to the contrary from economists, called Wednesday’s report “very, very troubling.”
Progressives are lowering their expectation for the spending package, Bloomberg’s Jarrell Dillard and Erik Wasson report, and the inflation numbers only increase the likelihood that the Build Back Better bill will have to shrink in size and scope, perhaps significantly, if it’s going to win Manchin’s crucial support.