December 13, 2021 — Inflation Hits 31-year High; Fed Meets this Week


As a fall out of rising consumer demand and covid-related supply chain issues, the US inflation rate hit a 39-year high in November up 6.8 percent from a year earlier. This is the greatest rise since 1982 and it is the sixth month in a row inflation has exceeded 5 percent. The core price index, excluding food and energy, was up 4.9 percent, up from a 4.3 percent increase in October; the highest increase since 1991.

A booming economy is driving inflation. Consumers are spending, demand is up, hirings are up, monetary policy remains easy. But covid remains the wild card that could derail the recovery.

As the November unemployment rate fell to 4.2 percent from 4.6 percent the month before, the worker shortage is driving inflation as employers need to raise labor costs which are passed on in rising prices. Companies are setting aside an average of 3.9 percent of total payroll for raises in the upcoming year, the most since 2008.

Fed officials are watching the data closely, with their last meeting of 2021 set for this week. It is likely an acceleration of the pull-back of asset purchases will be addressed, as well as a potential interest rate hike, during the first half of 2022, to get inflation in check.