Inflation numbers for 2021 are in, and it looks like 2022 will be a year where concerns about the economy will be very much at the fore.
Prices rose at the fastest pace in 40 years in December, increasing 7 percent over the same period a year ago, and cementing 2021 as a year marked by soaring inflation wrought by the ongoing coronavirus pandemic.
Prices were also up 0.5 percent in December compared to the month before, according to data released Wednesday by the Bureau of Labor Statistics.
Indeed, 2021 went down as the worst year for inflation since 1982, as broken supply chains collided with high consumer demand for used cars and construction materials alike. Higher prices seeped into just about everything households and businesses buy, raising alarms for policymakers at the Federal Reserve and White House that inflation has spread throughout the economy.
Steep increases in the cost of housing, and used cars and trucks, powered the overall rise in prices. Economists have been especially worried about rising home costs, since the cost of a new house or rent is often locked in through a long-term contract, and may not improve after the pandemic improves or supply chains clear up. Throughout the pandemic, used cars have consistently driven the cost of living higher, as a global shortage of microchips and high consumer demand for autos have sent prices to unprecedented highs.
The price of gasoline fell 0.5 in December after months of steep increases. White House officials have been hoping for such a turnaround following their moves over the past few months to lower prices at the pump, including releasing strategic oil reserves in November. Still, gas remains 49.6 percent more expensive than it was a year ago.
The cost of food was up 6.3 percent compared to the year before, as worker shortages and the spread of the coronavirus bedevil grocery supply chains and are causing empty shelves as recently as this week. Indexes for household furnishings, apparel, new vehicles and medical care were also all up.
Similar to November, indexes for motor vehicle insurance and recreation were among the few categories that declined compared to the month before.
The continued upward climb in prices adds new pressure for policymakers, as inflation is becoming the top headwind for the economic recovery.
“Price stability: learn it, know it, love it because that is what you’re going to hear from the Federal Reserve … as the central bank attempts to craft a soft landing,” wrote Joseph Brusuelas, chief economist at RSM. “Unfortunately, the December [consumer price index] data implies anything other than price stability.”
There’s no telling when prices will fall to more sustainable levels, and officials within the Fed and Biden administration expect high inflation will persist through much of 2022. That reality is pushing the Fed to make its strongest move yet to combat inflation, moving up the timeline for what could be as many as three interest rate increases starting as soon as March.
We are having exactly the sorts of problems that we tried to have a year ago. Instead of a recession and massive unemployment, we have some inflation. If you have a mortgage on your house, and have refinanced in the last year, this will probably help you in the long run, because the job market is such that you are likely to get a new job with a raise, or at least a raise.
Rising prices aren’t great, but they are better than not having a job. So, success.
It’s pretty basic that if human beings both get a raise and observe gas prices spiking, what they will take more note of is the gas prices.Report
And yet so many of them STILL defend the Paltry sums the “got” under Trump’s tax cut as being a reason it was worth depriving the treasury on $1.7 Trillion over a decade.Report
Are we sure that this isn’t just corporations being greedy in response to consumers finally going shopping again now that there are vaccines?Report
Well many of us are sure of that, but the economists quoted in the MSM don’t want to be sure of that because it impacts their ability to garner huge corporate consulting fees.Report
Well, then this is surely something that will pass once everybody starts pretending it’s 2019 again.Report
Please quote the price of lumber before and after the pandemic.
Then tell me how corporations being greedy affects this (Bonus points if you mention the Kochs).
I find it more likely that supply chain disruptions have made everyone’s life a living hell. And that means supply shortages for a lot of things, which means decreased supply and level demand.
Prices go up.
It’s basic economics.
Year over Year PPI is up to 24.2% in December, year over year. That’s Germany’s number, and it’s the highest increase on record post WW2. Pull America’s if you want, it’s also up alarmingly.
Supplies of everything are low.
Demand’s only dropping for condoms and condom-related activity (40% down from prepandemic) — and yes, that does mean a bit more demand (read inelasticity) for basic goods, but seriously…Report
this is true. You and I are not going to disagree over it. None the less the markups appear to be driven past a market “need” in many sectors. Surprising, don’t you think, that no CEO reported losses as a result of the pandemic?Report
https://www.wsj.com/articles/marriott-posts-first-annual-loss-since-2009-11613652495
Dude. No CEO? I didn’t even have to try to find this citation.Report
Has Joe Biden become Jimmy Carter?Report
I hope not. But like Carter his party on the Hill isn’t helping these days.Report
Carter had stagflation. At the moment we have inflation but the stagnation is conspicuously absent. It also bears noting that it was Carter, not Reagan, who appointed Volker who then killed inflation via steep interest rate hikes. Biden has given no indication he’d try and interfere if the Fed moves to hike rates.Report
And the Fed isn’t hiking rates yet either.Report
Trump tried going up to 2.5% interest. The economy started to flatline.
If we went up to 5% interest rates, we’d lose a lot of people.
The economy is not strong enough for Carter’s solution.Report
I remain … flummoxed … perplexed … frustrated … with all the man-on-the-street narratives about how the Administration caused this. Biden doesn’t set gas prices, nor does he control oil production by OPEC or Russia. he can’t force trucking companies to hire more drivers – which does take some amount of training time; and while he did broker a deal to get the west coast port flowing again, he can’t nationalize them and send in the Army to run them. He also can’t force employers to pay wages that will attract and keep workers and thus stem the Great Resignation.
But boy is it all his fault!Report
Don’t tell me this didn’t have ANY impact on fuel prices in the US, or if you do, show your work.
https://www.nrdc.org/stories/what-keystone-pipeline
“Canadian energy infrastructure company TC Energy—officially abandoned the project in June 2021 following President Joe Biden’s denial of a key permit on his first day in office.”
The president’s policy actions have consequences. On a “bigger” note, the Pres claims the credit when things are going well, even if his actions actually had little to do with the “goodness”, therefore, he gets the credit when things turn south. That’s the game, like it or not. If we want to change that, presidents should stop taking credit for stuff they didn’t do. 🙂Report
https://www.politifact.com/factchecks/2021/dec/01/facebook-posts/no-evidence-biden-canceling-oil-pipeline-caused-hi/
Even API – no friend of Democrats – says its nothing to do with a pipeline that wasn’t in production.
And if we are going to heap it all on the President – as if markets have no actors with their own agency – Then the unemployment rate being at historic lows and gas prices starting to come down (and still be below the Bush II era high point) ought to offset this . . . curious, don’t you think, that it doesn’t?Report
Demand is rising while supply is constrained.
Huh.Report
That surprises you? It shouldn’t.Report
I think that you misapprehend what I’m being surprised by.
But it’s all good.Report
Well I find that when people misapprehend its best to make a more detailed explanation.Report
You’ve been here long enough to know better.Report
True. I still believe, however, that when Jaybird goes obscure he needs to be called out for it.Report
Well, I’d say that one of the things that the pipeline was going to do was provide additional supply.
The price of any given commodity is not merely based on the commodity, but on what the expected price of the commodity will be tomorrow, next week, next quarter, next year, etc.
If something is worth $X today but you have good reason to believe that it will be worth $2X next quarter, that is a good reason to buy it. If everybody has good reason to believe that it’ll be worth $2X next quarter, you’re going to find that it’s no longer worth $X today, but something closer to $1.8X or somewhere thereabouts. Even though it’s not next quarter yet.
This works in all kinds of ways.Report
you will note in my politifact link above that people in the industry don’t see a current lack of supply as a problem. Because the original Keystone pipeline already made it to Nebraska, so the oil is making it to the US. The part Biden scuttled was an expansion to the Gulf, which bypassed existing pipeline and railroad transportation.
Even the Canadians weren’t worried:
https://www.cbc.ca/news/canada/keystone-xl-u-s-oil-supplies-pipeline-alberta-biden-1.5882313Report
You’re using the word “problem” when I wouldn’t use that word.
I would use the word “constraint” when, back when the pipeline was assumed, it was not a constraint. It was something that would provide additional supply.
This is not me saying “X IS BAD!” or “X IS GOOD!” but something closer to pointing out that if demand is rising while supply is constrained that closing off assumed additional supply EVEN IF IT ISN’T ACTIVE YET will result in a bump.
To be honest, this strikes me as a trivial observation.Report
Supply of cure oil to US Refineries – whether Canadian in source or otherwise isn’t presently constrained, nor will it be because an extension to Keystone didn’t get approved. There’s enough pipeline and rail transport capacity to meet demand at pre-COVID levels, and there was excess transportation capacity prior to COVID.
Refining output – which varies due to demand all the time – is the constraint at present, and Keystone has zero impact on that. Refineries routinely run at 60 or 70% capacity even in peak seasons so they have reserve capacity if something goes down.Report
I wasn’t using the word “constraint” as if “constrained” were a toggle.
It’s a continuum. A thing can be more constrained or less constrained. Like, there can be more supply or less supply.
It’s not a 1 or a 0.
Like, if you don’t see price as a function of the rate of growth of supply versus the rate of growth of demand, you might be tempted to say that something that hasn’t happened yet shouldn’t have an impact on price but people who do see it as a function of that could very easily see a failure to meet an expectation as a negative.
To be honest, I still think that this is a trivial observation.Report
And I’m saying the “constraint” of supply is a red herring. The American Petroleum Institute – whose business it is to know these things and lobby for that industry against government actions – is quoted above as saying the decision to not extend the existing pipeline from nebraska to the Gulf is not impacting supply. And as also noted above there are already existing pipelines and rail transport with excess capacity in them to absorb an amount of oil close to what might have flowed through the Keystone extension. This means that the extension is in the nice to have but not necessary to have category for oil futures. Or to use your language – the rate of growth of supply of crude oil for refining in the US isn’t constrained in some future time by the lack of pipeline extension.
Also note that the articles and fact check show that the issue isn’t crude oil flowing – is how much is getting refined. There were no publicly announced plans to build new refineries on the Gulf for any additional Keystone related supply in the future. Which tells me refineries have plenty of unused capacity they are sitting on. Which also tells me they could crank out more gasoline now if they chose to, which would lower prices.
Which leads back to the non-trivial observation that they aren’t yet choosing to.Report
Here’s the ten year gas price chart –
https://charts.gasbuddy.com/ch.gaschart?Country=USA&Crude=f&Period=120&Areas=USA%20Average%2C%2C&Unit=US%20%24%2FG
And here’s the pricing going back to 1994
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=a
Notice prices rising dramatically at the end of the Great Recession, and then fighting to get back down during the Obama years as we tried to create Mainstreet recovery. Gas prices currently are NOT outside historic trends. GO find another hobby horse to beat.Report
If you want a fun article explaining that the real problem is the corporations, The New Republic has an article titled: The Real Inflation Problem Is Corporate Profiteering.Report
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