Inflation Hits 7.5% as Most Things Get Pricier

The pace of price increases is now the highest since February 1982

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The inflation train seemingly has no brakes.

Consumer prices rose 7.5% in the year through January—the biggest jump since February 1982—and up from 7% in the year through December, the Bureau of Labor Statistics said in its monthly Consumer Price Index (CPI) report Thursday. Economists had expected fallout from the COVID-19 pandemic to push inflation higher, but not this much—the median estimate was 7.2%. 

“If American shoppers were looking for relief from high inflation, they won't find it in the January CPI report,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a commentary.

During the month, prices rose 0.6%—matching the previous month’s pace but more than the 0.4% economists had expected. Besides gasoline, natural gas, and new vehicles, most major spending categories got more expensive, including groceries, electricity, and housing. Excluding food and energy prices—which tend to be the more volatile categories—the so-called core inflation rate rose to 6% for the year through January, up from 5.5%.

Inflation rates, which were in the 2% range prior to the pandemic, have spiked in the last year as supply chain disruptions and worker shortages made it harder for businesses to meet heavy consumer demand. Small signs of relief in the supply picture haven’t translated into a topping off in inflation, as some economists had predicted, and higher costs are feeling relentless for consumers. That gives the Federal Reserve all the more reason to move aggressively to tame inflation, namely with benchmark interest rate increases that are expected to begin in March, economists said.

“The inertia in inflation looks increasingly difficult to break,” economists at Wells Fargo Securities said in a commentary. “Inflation is likely to remain uncomfortably high for consumers, businesses and the Fed alike.”

The higher the inflation the more likely it is that the Fed will use its benchmark fed funds rate to influence borrowing costs and tamp down consumer demand. In fact, after the inflation report was released Thursday, the CME FedWatch tool, which uses futures contracts to estimate the probability the Fed will raise its fed funds rate benchmark, was showing a strong chance that the rate—which has been at virtually zero since the start of the pandemic—would be increased by 0.5 percentage point in March. Beforehand, the chances favored an increase of a 0.25 percentage point.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Bureau of Labor Statistics. “Consumer Price Index Summary.”

  2. Marketwatch. “U.S. Economic Calendar.”

  3. BMO Economics. “U.S. CPI: The Pressure Is On.”

  4. Wells Fargo Securities. “January CPI: Darkest Before the Dawn?

  5. CME Group. “Countdown to FOMC: CME FedWatch Tool.”

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