Consumer prices popped again in December as policymakers await an elusive peak.
The Consumer Price Index increased at the fastest pace in 40 years, a new report showed.
Year-over-year percent change
in the Consumer Price Index
Year-over-year percent change in the Consumer Price Index
Inflation closed out 2021 on a high note, bad news for the Biden White House and for economic policymakers as rapid price gains erode consumer confidence and cast a shadow of uncertainty over the economy’s future.
The Consumer Price Index climbed by 7 percent in the year through December, and by 5.5 percent after stripping out volatile prices such as food and fuel. The last time the main inflation index eclipsed 7 percent was 1982.
Policymakers have spent months waiting for inflation to fade, hoping supply chain problems might ease, allowing companies to catch up with booming consumer demand. Instead, continued waves of virus have locked down factories, and shipping routes have struggled to work through extended backlogs as consumers continue to buy goods from overseas at a rapid clip. What will happen next might be the biggest economic policy question of 2022.
Wednesday’s fresh data showed that the cost of used cars, shelter and food are all increasing quickly.
Prices for used cars and trucks have been a big driver of recent inflation. Auto manufacturers have been struggling to get their hands on parts — particularly computer chips imported from Asia — delaying production of new vehicles and pushing up demand for a finite supply of used ones.
Recent lockdowns in China meant to contain the coronavirus could exacerbate the shortage. When it comes to vehicle prices, “it’s not over yet,” said Jim O’Sullivan, chief U.S. macro strategist at T.D. Securities, said before the report.
As prices continue to surge, economic policymakers are poised to react. Federal Reserve officials have indicated that they expect to raise interest rates several times this year as they try to slow down demand and the economy, in a bid to make sure that the pandemic-era burst in prices does not become a permanent feature of the economic landscape.
Jerome H. Powell, the Fed chair, emphasized on Tuesday, when he spoke before the Senate Banking Committee at a renomination hearing, that the Fed’s moves to reduce policy help will adjust to the economic conditions.
“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” he said at the hearing.
Investors and economists increasingly expect four interest rate increases this year.
The future trajectory of inflation is uncertain, as price pressures spread across many categories.
While gas prices moderated somewhat in December, food has been growing steadily more expensive. Food at home climbed in price in December, while food away from home grew even more rapidly last month — and full-service restaurant meals picked up by 6.6 percent over the year.
Economists and Wall Street analysts tend to closely focus on a measure of prices that strips out food and fuel costs, because they jump around a lot from month to month, but those expenses matter a lot to households.
The fact that high prices are taking a bite out of household budgets seems to be one of the reasons that consumer confidence has faltered; gas and food tend to be among the most salient costs for shoppers.
Jon Willow, 55 and from Interlochen, Mich., has seen grocery costs climb steeply since the pandemic started — so much that she and her partner have tried to move away from purchased produce by canning vegetables from their garden and heating their henhouse through the winter so that their chickens keep producing eggs.
“We have a no-food-left-behind policy at the house now — we use everything,” she said, noting that they had preserved tomatoes, squash and asparagus.
The pair are worried about whether their retirement savings will last as long as they had expected and planned for, given the quicker price increases. Both are still working: Ms. Willow has a communications practice that works with local governments and utilities and is co-founder of a nonprofit focused on expanding rural broadband. Her partner is a full-time design engineer at a local business that makes custom signs for large companies. They had planned for the future assuming a lower inflation rate.
A critical question for families like Ms. Willow’s is how long today’s heady inflation persists. Policymakers and economists had initially hoped that they would alleviate quickly, and still expect them to moderate throughout 2022. Mr. O’Sullivan at T.D. Securities said he thinks price gains could hover around 7 percent for a few months before beginning to decline, which would make this roughly peak inflation.
They are, however, paying attention to a few factors that could keep prices rising too quickly for comfort.
While inflation pressures were centered squarely on goods early in the pandemic, they have recently been creeping into services — and importantly, into rents. Housing costs based on rents make up about a third of the Consumer Price Index, so the fact that landlords are charging more matters a lot for overall inflation.
Officials are also very uncertain about when the supply chain crisis that has pushed up the cost of cars, couches and imported goods of all kinds will abate. There are early signs that shipping route snarls and depleted inventories may be moderating, but other signals suggest a return to normal will take time.
“You always see a few snowflakes, but it doesn’t amount to a storm yet,” Mr. Powell, the Fed chair, said during Senate testimony on Tuesday, of signs that kinks in the supply chain are resolving themselves.
Caroline McCroskey, 27 and from Tulsa, Okla., manages marketing for a furniture manufacturer that imports pieces from China and Cambodia and sells them to major retailers. The company has seen sharp cost increases as shipping container prices have rocketed higher.
“The freight is bad enough, but we’ve seen a dramatic increase in leather hides and fabrics,” she said. “Nobody is feeling super optimistic about shipping rates returning to normal anytime soon.”
High inflation is a political liability for the White House as Democrats head into a midterm election year when they will battle to retain control of Congress. Republicans have increasingly accused President Biden of driving prices higher by flooding the economy with too much money, including a third round of stimulus checks.
The administration is doing what it can to alleviate the supply chain problems, from pushing for longer port opening hours to releasing strategic petroleum reserves to help bring fuel prices down. But most economists say that those moves only help around the edges.
“Inflation has become a dominant political issue, but one that is largely out of the administration’s control,” Alec Phillips, an economist at Goldman Sachs, wrote in a recent research report.
Persistent challenges in getting goods from factories to customers continue to drive up the price of cars, computer chips, furniture and other products, pushing up consumer prices in December at the fastest rate since 1982.
The Consumer Price Index climbed 7 percent in the year through December, and 5.5 percent after volatile prices such as food and fuel were stripped out, data released Wednesday showed.
The price of used cars and trucks surged 37.3 percent in the year to December, while food grew 6.3 percent and apparel rose 5.8 percent. Increases in the cost of energy and rent also drove price increases.
The Omicron variant is infecting workers at factories, ports, trucking companies and warehouses and leading to further shortages of some products and parts used for making goods. Strong demand from American consumers also continues to elevate shipping prices and fuel price increases for a variety of products.
Despite some predictions that supply chain woes would dissipate, many businesses appear to have seen little improvement in supply chain problems that continue to raise costs and spill over into higher sticker prices.
“Much of the tumultuous nature of the supply chain that occurred over the entire last year continues, and unfortunately there is not a lot of relief in sight,” said Douglas Kent, the executive vice president of strategy and alliances at Association for Supply Chain Management.
The price to ship a 40-foot container from Asia to the U.S. West coast hit $14,572 this week, down slightly from a peak of more than $20,000 in September, but still nearly a tenfold increase from two years ago, according to data from Freightos Group.
The group’s data also showed that delivery times for ocean shipments from China to the United States stretched to a record 80 days in December, up 85 percent from 2019.
Judah Levine, head of research for Freightos Group, said delays were still a reality for American importers, because of still-surging demand and continued congestion at the ports of Los Angeles and Long Beach, the gateway for many goods from Asia. Recent flight cancellations due to the omicron surge would further restrict cargo capacity and help keep rates up, he said.
Speaking at the Port of Long Beach on Tuesday, Secretary of Transportation Pete Buttigieg said the record volumes of goods moving through American ports were straining systems that had seen decades of underinvestment, leading to delays and price increases.
But he praised the ports for making changes like extending their operating hours and prioritizing shipments of medical supplies, and said that more investments to expand capacity were on the way.
“There’s no question that when you have a scarcity of access to shipping, you’re going to see upward pressure on prices, and that’s going to part of our challenge when it comes to inflation,” Mr. Buttigieg said.
With price increases weighing on the president’s approval ratings, the Biden administration has convened meetings with leaders from logistics firms, retailers, ports and trucking companies to try to overcome these obstacles.
It has promised $17 billion in investments at ports as part of the infrastructure law. But given that most links in the supply chain are owned by the private sector, the administration has found few short-term solutions to the supply crunch.
While much of the United States seems intent on returning to business as usual, at least as soon as the current Omicron surge subsides, further disruptions in other parts of the world could prolong the difficulties for companies and consumers.
China, home to many of the world’s factories, has confined millions of its residents in recent weeks to try to keep the Omicron variant at bay.
The country’s zero-tolerance strategy for Covid is leading to the broadest lockdowns since the pandemic began, slowing traffic to some of the world’s busiest ports and sparking concerns about more disruptions this year. China remains the largest supplier of goods to the United States.
“If they stick to their zero-case doctrine, a global supply chain disaster is on the horizon,” said Tinglong Dai, a professor of operations management at Johns Hopkins University Carey Business School.
Housing costs jumped last month, as higher prices continued to constrain aspiring home buyers and push up the demand for apartment and home leases.
Rent costs rose 0.4 percent in December, according to government data released on Wednesday, helping to drive the Consumer Price Index up 7 percent in the year through December.
Rent, along with “owners’ equivalent rent” — a measure that tries to put a price on how much homeowners would pay for housing if they hadn’t purchased their home — make up about a third of the index, so they are a key component of inflation.
The relentless increase in housing costs, which typically move slowly and remain high once they rise, could continue to put pressure on the Federal Reserve because it could prolong price gains. Rising rents also affect household budgets acutely and persistently, which contribute to feelings of economic unease that could spell trouble for Democrats heading into a midterm election year that will be pivotal for the fate of President Biden’s agenda
The December data was a capstone to a buoyant year for the housing market after a weak 2020. Several factors have contributed to the surge, including that many would-be home buyers — often young adults eager for more space during the pandemic — found themselves on the sidelines as housing prices rose steeply during the pandemic. This kept more people in the rental market, leading to increased desire for rental apartments, homes and condominiums.
At the same time, supply chain issues and labor shortages continued to curtail the number of new houses and apartment buildings available, exacerbating the mismatch between housing supply and demand.
“Americans were playing musical chairs with their housing but more and more people kept joining into the game, and we had trouble building chairs because of lumber shortages,” said Igor Popov, the chief economist at Apartment List.
Unlike in 2020, when rental costs rose in more affordable markets and midsize suburbs but fell in big cities such as New York, rents in 2021 “went up dramatically basically everywhere,” Mr. Popov said.
There may not be much relief for renters this year, either. Apartment List’s real-time rent tracker showed that the market began to cool down at the end of the year. Many economists anticipate that the rate of growth may slow, but they expect rental costs overall to continue to rise.
“My gut feeling is that the pace of appreciation is going to be slower in 2022 than it was in 2021,” said Jeff Tucker, a senior economist at Zillow. “But I don’t see rents actually dropping or getting more affordable.”
That could be particularly frustrating for people who would have become homeowners if they could have afforded it. Unable to buy a home, they may now be equally unlucky with rent, as landlords continue to do away with pandemic-era rent concessions and raise rents because of increased demand.
For those people, navigating the housing market this year “is going to really sting a lot more,” Mr. Tucker said.
“The cost of rent is rising so a lot of people will feel caught between a rock and a hard place or between a frying pan and a fire,” he added.
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Citigroup will exit its consumer banking business in Mexico, where it has more branches than in any other country, closing the curtain on an operation that was both extremely profitable and plagued by scandal.
The bank announced on Tuesday that it would either sell or take public Banco Nacional de M?xico, better known as Banamex, which it bought in 2001 for $12.5 billion, as part of its “strategic refresh.”
Citi will still offer institutional and investment banking services for large companies in Mexico and private banking options for ultrawealthy residents of the country. But it will no longer have branches there to serve individual account holders or small- or middle-market businesses. And it will no longer be bound up with an operation that has generated heavy regulatory scrutiny.
“We’ll be able to direct our resources to opportunities aligned with our core strengths and competitive advantages,” Citi’s chief executive, Jane Fraser, said in a statement emailed to journalists. “We will further simplify our bank.”
In 2014, Banamex revealed that one of its most important clients, a Mexican oil services firm, had defrauded the bank of $400 million and that, in a separate matter, bodyguards working for bank employees were taking kickbacks from some of the bank’s vendors.
In 2015, federal banking regulators and California fined a related, U.S.-based Citi subsidiary, Banamex USA, $140 million for failing to have adequate anti-money-laundering controls in place, conditions that regulators learned of while trying to follow the flow of drug money. Citi later shut down the U.S. business and paid $97.4 million to settle a federal criminal investigation into the matter.
Citi has also said it will exit its consumer businesses in Asia and Europe, part of a plan to “focus on wealth centers globally,” according to its announcement on Tuesday. Citi earned $1.2 billion from its Mexican consumer business during the first three quarters of 2021. The bank is scheduled to report fourth-quarter results on Friday.
Delta Air Lines and a large flight attendants union are fighting about whether the company’s new isolation policy for employees who test positive for the coronavirus puts workers and travelers at risk.
The airline’s chief legal officer sent a letter on Friday to the Association of Flight Attendants-C.W.A. saying the union had posted “false and defamatory information” about the company’s policies and asking it to correct those statements and stop repeating them. The union, which represents nearly 50,000 flight attendants at 17 airlines and is seeking to unionize Delta’s flight attendants, responded on Tuesday that its statements had been “truthful and accurate.”
“Delta has always followed the science to form our policies regarding Covid-19,” the airline said in a statement on Tuesday. “We sent a cease and desist letter because we believe institutions and leaders must speak carefully, truthfully and factually.”
The union’s president, Sara Nelson, said Delta was responsible for confusing workers. “We’re glad that A.F.A.’s calling attention to the issues appears to have led Delta to update its policy several times and communicate this to workers,” Ms. Nelson said in her letter, which was addressed to Delta’s chief executive, Ed Bastian.
The dispute concerns Delta’s adherence to a recent change by the Centers for Disease Control and Prevention, which has shortened the recommended isolation time to five days for people who are vaccinated and who get the virus, so long as their symptoms are resolving and they have no fever.
The C.D.C.’s updated guidance was released after Delta executives sent the agency a letter arguing that the previous 10-day isolation period “may significantly impact our work force and operations.” Some public health experts had also called for updated guidelines.
Airlines canceled tens of thousands of flights over the holidays in response to bad weather and because thousands of employees called in sick. In a single day, nearly a third of United Airlines employees at Newark Liberty International Airport reported being unable to work. About 3,000 United employees have recently tested positive for the virus.
After the C.D.C. changed its guidance, Delta quickly adjusted its own policies, slashing the Covid-specific paid sick leave to five days for workers who are fully vaccinated, with two additional paid days if they choose to be tested on Day 5 and the results are positive. In accordance with C.D.C. guidelines, it does not require a negative Covid test to return to work. The C.D.C.’s decision not to recommend a test after five days of isolation has been criticized by some scientists. Delta, which said that over 95 percent of its work force is vaccinated, said employees may return to work only if they had no symptoms and must wear a mask in all settings through the 10th day after testing positive.
Ms. Nelson has claimed that the union is “still getting questions from Delta flight attendants about returning to work with a low-grade fever.” She also said the union was hearing concerns about the availability of tests and confusion over guaranteed pay and the quality of masks required for those returning to work.
Ms. Nelson criticized the changes, warning airlines that they could put passengers and airline employees at risk. Delta’s pilots union has expressed similar concerns.
“Unfortunately, changing C.D.C. and company guidance, compounded by limited testing availability, has led to confusion among employees who may be returning to work sooner than they should or are comfortable doing so,” the pilots union, the Delta Master Executive Council, said in a statement.
Most flight attendants at large airlines are represented by unions, and Ms. Nelson’s organization has been trying to organize Delta for several years.
In his letter to the union, Delta’s chief legal officer, Peter Carter, defended the airline’s policies, saying Delta has been “laser focused on keeping its employees safe and providing them the necessary time off when they are too ill to work” during the pandemic.