U.S. Inflation Rate Hits 40-Year High Of 7%

The U.S. inflation rate rose to 7% in December from a year earlier, its fastest expansion in 40 years, according to data from the Labor Department in Washington, D.C.

The consumer price index (CPI), a metric that measures costs across dozens of items, increased an annualized 7%, according to the department’s Bureau of Labor Statistics. On a monthly basis, CPI rose 0.5%.

Economists surveyed by Dow Jones had been expecting the gauge to increase 7% on an annual basis and 0.4% from November.

The annual move was the fastest increase since 1982 and comes amid a shortage of goods and workers, and on the heels of unprecedented cash flowing through the U.S. economy from Congress and the Federal Reserve.

Despite the strong gain, stocks rose after the news while government bond yields were mostly negative.

Excluding food and energy prices, so-called “core CPI” increased 5.5% from last year and 0.6% from the previous month. That compared with estimates of 5.4% and 0.5%. For core inflation, it was the largest annual growth since 1991.

Shelter costs, which make up nearly one-third of the total rose 0.4% for the month and 4.1% for the year. That was the fastest pace since 2007.

Inflation has been eating into otherwise strong wage gains for workers. However, real average hourly earnings posted a small 0.1% increase for the month. On a year-over-year basis, real earnings declined 2.4%.

Central bank officials are watching the inflation data closely and are widely expected to raise interest rates this year in an effort to combat increasing prices and as the jobs picture approaches full employment.

Investors largely expect the U.S. Federal Reserve to start raising rates in March. Fed Chairman Jerome Powell, at his confirmation hearing earlier this week did not provide any specific dates but acknowledged that as long as current conditions persist, rate hikes are on the way.

Markets are pricing a nearly 79% chance for the first quarter-percentage point increase to come in May and see about a 50% chance the Fed could enact four interest rate hikes in 2022, according to the CME’s FedWatch Tool.