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US inflation in January points to a new 40-year all-time high

2022-02-10T13:28:56.642Z


Analysts believe that inflation may pick up a couple of tenths more, and even three, to 7.3% year on year, while wages rise at the fastest pace in at least 20 years.


By Christopher Rugaber

Associated Press

With American consumers spending freely and many supply chains still stuck, year-on-year inflation may have hit a new four-decade high in January.

The factors that have accelerated prices since last spring remain largely the same: wages are rising at the fastest pace in at least 20 years.

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Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the busiest in the country, on leave last month.

Consequently, many products and parts remain in short supply.

And reports indicate that the expiration of stimulus checks and other government aid has yet to curb Americans' appetite for shopping.

Economists forecast that when the Labor Department releases January inflation figures on Thursday, they will reveal consumer prices rose 7.3% compared to 12 months ago, according to data provider FactSet.

This would be an increase from 7.1% year-on-year in December and would mark the largest increase since February 1982.

At the same time, other figures could suggest that price growth has started to slow down.

If measured from December to January, consumer inflation could have decreased for the third month in a row.

Analysts have forecast prices to rise 0.4% from December to January, compared to 0.6% from November to December and 0.7% from October to November.

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Still, the fastest year-over-year inflation in 40 years has wiped out the benefits of rising wages for most Americans, leaving them less able to afford food, gas, rent, child care and other needs.

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Inflation has become the biggest risk factor for the economy and a serious threat to President Joe Biden and congressional Democrats as the midterm elections loom this year.

The Federal Reserve and its chairman, Jerome Powell, have backed away sharply from the ultra-low interest rate policies the Fed has pursued since the pandemic devastated the economy in March 2020.

People shop for food at a supermarket in Glendale, California, on January 12, 2022. Robyn Beck / AFP via Getty Images

Powell signaled two weeks ago that the central bank is likely to raise its short-term benchmark interest rate several times this year, with the first hike almost certainly coming in March.

Investors have priced in at least five rate hikes by 2022.

Over time, those higher rates will drive up the costs of a wide range of loans, from mortgages and credit cards to auto loans and corporate loans.

For the Fed, the risk is that by constantly tightening credit to consumers and businesses, it could trigger another recession.

Many large companies, on conference calls with investors, have said they expect supply shortages to persist until at least the second half of this year.

Companies from Chipotle to Levi's have also said they will likely raise prices again this year, having already done so in 2021.

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Chipotle said it has raised menu prices 10% to offset rising beef and transportation costs, as well as increased employee wages.

And the restaurant chain said it would consider further price increases if inflation continues to rise.

"We still think beef is going to go up and then down, and it hasn't happened yet

," said John Hartung, the company's chief financial officer.

However, Chipotle executives, as well as those of Starbucks and other consumer companies, have said that their customers do not seem to be fazed by the price increase.

Levi Strauss & Co. raised prices last year about 7% above 2019 levels due to rising costs, including labor, and plans to do so again this year.

Even so, the San Francisco-based company has improved its sales forecasts for 2022.

"Right now, all the signs we're seeing are positive," CEO Chip Bergh told analysts.

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Many small businesses, which typically have lower profit margins than big companies and have struggled to match their hefty pay rises, are also raising prices.

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The National Federation of Independent Businesses, a trade group, said it found in a monthly survey that 61% of small businesses raised their prices in January, the highest proportion since 1974 and an increase of just 15% before the pandemic.

“More small business owners started the new year by raising prices in an attempt to pass on higher inventory, supply and labor costs,” said Bill Dunkelberg, chief economist at the NFIB.

"In addition to the inflation problems, owners are also raising pay at record rates to attract qualified employees to their vacant positions," he said.

Those wage increases could force additional price hikes in the future, as companies try to cover the costs of the extra wages.

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In the past year, soaring costs of gasoline, groceries, cars, and furniture have shaken the budgets of many Americans.

In December, economists at the University of Pennsylvania's Wharton School of Business estimated that the average household had to spend $3,500 more to buy the same amount of goods and services as in 2020.

Source: telemundo

All news articles on 2022-02-10

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