Massive shortages and inflation of 7%, the highest in 40 years

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Inflation in the United States grew in the last month at its fastest rate in almost 40 years, an increase of 7% compared to the previous year that has skyrocketed household spending, eaten up wage increases and put pressure on the president Joe Biden and the Federal Reserve to address what has become the greatest threat to the American economy.

The prices of vehicles, gasoline, food and furniture rose sharply in 2021 as part of a rapid recovery from the recession caused by the pandemic. Huge injections of government aid and extremely low interest rates helped boost demand for products, while vaccines gave the population confidence to go out to dinner or on vacation.

As Americans increased their spending, supply chains struggled with labor and raw material shortages, magnifying price pressures.

The Labor Department reported Wednesday that an inflation measure that excludes volatile food and gasoline prices rose 5.5% in December, also the highest in decades. Headline inflation rose 0.5% compared to November, down from 0.8% the previous month.

Price increases could slow down in the future once supply chain problems are fixed, but most economists agree that inflation will not return to pre-pandemic levels anytime soon.

“There is no sign of easing inflationary pressure in the United States,” said James Knightley, chief international economist at financial services company ING. β€œIt hasn’t been that high since the Thatcher and Reagan days. We could be near the highest point, but there is a risk that inflation will remain higher for longer. “

High inflation is not unique to the United States. In the 19 European countries that use the euro as their currency, inflation increased 5% during December compared to the previous year, the largest increase on record.

Companies of all sizes do what they can to accommodate.

Nicole Pomije, who owns a bakery in the Minneapolis metropolitan area, said she plans to raise the price of her cookies due to rising ingredient costs.

Their basic cookies cost 99 cents each, while the premium versions sold for $ 1.50. But Pomije said the price of basic cookies will have to increase to the cost of premium cookies.

“We have to earn some money,” he said. β€œWe don’t want to lose our customers. But I think it could happen. “

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