Consumer prices jump 7% in 2021

Another month, another record-setting leap in prices.

Inflation hit a fresh 39-year high in December as a drop in energy costs wasn’t enough to offset a steady march upward for staples such as food, rent and cars amid stubborn supply-chain bottlenecks and worker shortages.

The consumer price index jumped 7% last year, the fastest pace since 1982, the Labor Department said Wednesday. That’s up from 6.8% annually in November, which was also a nearly four-decade high. COVID-19’s fast-spreading omicron variant likely intensified the price increases by spawning more worker absences in global delivery networks and slowing shipments, says Wells Fargo economist Sam Bullard. That more than erased any easing of demand and prices in COVID-19-sensitive industries like travel, Bullard says.

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This week, investors are set to focus on updates on the Omicron variant and inflation. Concerns around both of these factors had stirred up volatility across markets last week.  The two are intertwined. Many have feared that an additional wave of the coronavirus could spur another slowdown in consumer mobility and spending that hits economic activity and corporate earnings. Vaccine-makers and other researchers have yet to determine the extent of Omicron’s transmissibility and severity of illness caused by the variant, or whether it is at least partially resistant to current vaccines.

And yet despite these virus-related fears, monetary policymakers have signaled they are ready to pull back on monetary policy stimulus that had helped support the economy for more than a year-and-a-half during the pandemic. That’s come as inflationary trends have proven stickier than previously expected, given tighter monetary policies could help ease elevated prices.

Investors are set to receive an updated look at the state of inflation later this week, with the Labor Department releasing its November Consumer Price Index (CPI) on Friday. Though the Federal Reserve has typically looked to the core personal consumption expenditures (PCE) index as its preferred gauge of inflation, the CPI has served as another critical datapoint underscoring the extent of price increases impacting Main Street consumers.

https://finance.yahoo.com/

Well ahead of the Bank of England target of 2.0 percent inflation

High energy prices drove inflation in the UK to a 10-year high of 4.2 percent in October, and energy is expected to fuel additional price hikes next year when the energy regulator is set to raise the so-called price cap. The UK has a so-called Energy Price Cap in place, which protects households from too high bills by capping the price that providers can pass on to them, but which additionally burdens energy providers.

The Consumer Prices Index (CPI) in the UK rose by 4.2 percent in the 12 months to October 2021, up from 3.1 percent in September, the Office for National Statistics said on Wednesday. The October inflation rate was well ahead of the Bank of England target of 2.0 percent inflation, which raises the odds of the central bank raising interest rates in December.

Last month, “the main upward pressure came from electricity, gas and other fuels, which contributed 0.59 percentage points to the CPIH 12-month inflation rate,” the Office for National Statistics said today.

https://oilprice.com/

Stocks already lower

Red-hot consumer inflation data for April spooked markets and raised concerns that the Fed is wrong about rising prices being just temporary. If the Fed is incorrect, that means that it could begin to unwind its easy policies quicker than expected and ultimately raise interest rates.

The Consumer Price Index for April rose 4.2% from a year ago, the briskest pace since September 2008. Economists had expected a big number, of 3.6%, because of base effects accounting for last year’s weakness. But the CPI’s surge took markets by surprise, sending Treasury yields higher and stocks lower.

The CPI measures a basket of goods and energy and housing costs. Excluding food and energy, core CPI increased by 3% year over year and 0.9% on a monthly basis, compared with respective estimates of 2.3% and 0.3%. Stocks, already lower, buckled under the inflation worry when the Labor Department released its report at 8:30 a.m. ET Wednesday. Tech slumped and the losses on the Nasdaq accelerated. The index was down 2% in afternoon trading, while the S&P 500 was off 1.6%.

https://www.cnbc.com/