US inflation hits highest level in 40 years in January as prices rise 7.5% from 2021 | US markets

Inflation in the US climbed to its highest level in 40 years in January, with prices rising by 7.5% from a year ago, the Bureau of Labor Statistics reported on Thursday.

The rise in the consumer price index (CPI) survey – which measures the costs of a wide variety of goods – was the largest since February 1982. CPI rose 0.6% from December, higher than expected but still down significantly from last October when inflation rose 0.9% on a monthly basis.

Inflation in America has been driven higher by soaring demand and a lack of supply caused by Covid-19’s global impact on trade.

Price rises for food, electricity, and shelter were the largest contributors to the increase. The food index rose 0.9% in January following a 0.5% increase in December. The energy index also increased 0.9% over the month.

After stripping out food and fuel – whose prices are volatile – inflation still climbed 6% on an annual basis. A nationwide shortage of used cars also continued to drive the rise. Used cars prices were 40.5% higher in January compared to a year ago. Housing costs rose 4.4% from a year ago.

The Federal Reserve has signaled that it intends to raise interest rates at its meeting in March in an effort to dampen spending and bring down prices. In a note to investors, Oxford Economics argues the latest CPI news was likely to mean rate rises in the months ahead.

“The Fed sees its top priority as taming inflation. These strong price data raise the prospect of the Fed starting its tightening cycle with a 50bps [basis points] rate hike at its March policy meeting, followed by consecutive rate hikes at the subsequent meetings,” it wrote.

Rising prices have battered Joe Biden’s approval ratings even as the jobs market has roared back from its pandemic slump. The US economy grew at 5.5% last year, the strongest growth rate since 1984, and more than 1.6m new jobs have been added in the last three months.

But with gas prices, food and housing prices still rising, just 37% of Americans approve of how he is handling the economy, according to a poll conducted by Associated Press-NORC Center for Public Affairs Research.

Speaking in Virginia, Biden acknowledged the price hike news: “I know food prices are up. We’re working to bring them down. I’m going to work like the devil to bring gas prices down,” he said.

On Wednesday ahead of the latest CPI release, the White House warned the latest consumer prices snapshot could be high. “We expect a high yearly inflation reading in tomorrow’s data,” said Jen Psaki, the White House press secretary. “Above 7%, as I think some are predicting, would not be a surprise.”

“What we’re looking at is recent trends … the inflationary increases are decreasing month to month,” Psaki said.