Updated Feb 10, 2022 - Economy

Inflation hits fresh 40-year high

Data: U.S. Bureau of Labor Statistics; Chart: Axios Visuals

A lot of hopes are riding on inflation easing in 2022. That sure didn't happen in January, however.

  • The 0.6% rise in the Consumer Price Index last month undermines the idea, which the Biden administration and the Federal Reserve have been betting on, that inflation will remain contained to a handful of industries and fade with time.
  • Consumer prices rose 7.5% over the last year, the highest since February 1982.

Why it matters: The persistence of high inflation raises the risk of a self-reinforcing cycle that might take more aggressive action to unwind — which would risk slowing the economy.

The big picture: Inflation coming in hot yet again will make the Federal Reserve more inclined to raise interest rates more aggressively than planned and take other steps to try to rein in prices before they spiral further.

  • That's why stock futures plunged on the release, and the yield on two-year Treasuries surged 0.10 percentage points — a huge move in that market.

By the numbers: It is true that some of the steepest price rises in January were in the volatile energy space, like a 9.5% rise in the price of fuel oil and 4.2% rise in electricity costs.

  • But the phenomenon of prices rising at an uncomfortably fast pace was broad-based. Prices rose for apparel (1.1%), car insurance (0.9%), and restaurant meals (0.7%).
  • Moreover, rents continued pushing upward (0.5% for rental properties, 0.4% for the equivalent rent of homes people own), which creates in effect a floor that keeps inflation from falling.
  • Prices for used cars and trucks, a reflection of ongoing disruptions that have hamstrung car producers, remained a large contributor to the inflation increase. They were up 40% in January, compared to the prior year.

The good news is that this high inflation has come alongside a robust jobs recovery, as data confirmed last week.

Yes, but: Wages are not keeping up. Average hourly earnings rose a heady 5.7% over the 12 months ended in January — but that is a lot less heady when considering that consumer prices rose 7.5%.

Editor's note: This story has been updated with new details.

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