The United States posted 7.0% annual inflation, the highest since 1982.

The%20United%20States%20posted%207.0%25%20annual%20inflation%2C%20the%20highest%20since%201982.
source: cnbc.com

The United States posted 7.0% annual inflation, the highest since 1982.

Although the price increase slowed down in December, data from the Labor Department show a record balance for the last 39 years.

Consumer prices in the United States soared 7.0% in 2021, the highest rise since 1982, a significant concern for President Joe Biden, who promised to stop this inflationary spiral.

According to the CPI index (CPI), energy prices rose 29.3% and food prices 6.3%, according to CPI index (CPI ). If these volatile sectors are excluded, core inflation reached 5.5%, its highest level since February 1991.

Public Enemy

Inflation, which many economists, including those in the White House and the Federal Reserve, viewed as a transitory phenomenon, became "public enemy number one."

The Fed's inflation target stands at 2% per year, well below the record published on Wednesday.

In December, however, inflation slowed compared to November, to 0.5% from 0.8%, according to the consumer price index released Wednesday by the Labor Department.

But core inflation was higher in December than in November (0.6% versus 0.5% respectively).

The index that explicitly measures energy prices "fell back in December" and thus ended with "a long series of increases," the Labor Department statement said.

In December, it was mainly house prices and used cars that rose the most. Food products "also contributed" to the rise "although they rose less than in recent months," the report noted.

A mismatch between supply and demand

The omicron variant of coronavirus could drive prices higher. The high number of infections leads workers to quarantine and thus hits the production and delivery of products, affecting demand and pushing prices up.

Fed Chairman Jerome Powell, who had his Senate confirmation hearing on Tuesday for a second term at the central bank's head, promised to act if record inflation persists into the second half of the year. As a result, the agency is willing to increase its rates more than expected.

If the inflationary push continues beyond the middle of 2022, "we will react accordingly," Powell said.

"The return to normality will take time," he warned, however, at a time when the agency's benchmark rates are close to zero.

"To ensure a sustainable expansion (ndlr: of the economy), we must have price stability, " continued Powell in his statements to lawmakers.

Powell attributed most of the rise in inflation to a "mismatch" between supply and demand caused by disruptions in the supply chain.

And he emphasized that recovering price stability is a priority for the Fed.

The weight of wages

The Fed chief also described an economy with a labor market recovering "incredibly fast" from the crisis caused by the pandemic.

Workers find jobs quickly, to the point that each month millions of people quit opting for a better career opportunity and a higher salary.

In December, he noted that unemployment in the United States fell to 3.9%, returning to its pre-pandemic level (3.5%). However, he acknowledged that returning to work for some people remains difficult despite many vacancies.

The higher wages that many employers offer to attract candidates or keep their employee's fuel inflation.