A measure of prices that is closely tracked by the Federal Reserve rose 5.8% last year, the sharpest increase since 1982, as brisk consumer spending collided with snarled supply chains to raise the costs of food, furniture, appliances and other goods.
WASHINGTON — also said that consumer spending fell 0.6% in December, with purchases of cars, electronics, and clothes declining. Higher prices might have discouraged some shoppers, along with a wave of omicron cases that kept many Americans from traveling, eating out or visiting entertainment venues.Stubbornly high inflation has hammered household budgets, wiped out last year’s healthy wage gains and posed a severe political challenge to President Joe Biden and Democrats in Congress.
Still, economists say steady job gains and increased savings should eventually drive more spending later this year, especially if the omicron wave keeps fading. Excluding the volatile food and energy categories, so-called core prices rose 4.9% last year, the biggest increase since 1983. That was up from a 4.7% year-over-year rise in core prices in November.
Besides raising interest rates, Chair Jerome Powell said Wednesday that the Fed will move to shrink its huge $8.9 trillion of bond holdings this year, another step that will likely tighten credit, slow spending and potentially weaken the economy. Powell has said that a sharp rise in pay and benefits, reported in November, was a key reason why the Fed began shifting its policy toward higher interest rates. While rising wages are good for employees, they can also elevate inflation if they aren’t offset by efficiency gains.
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