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What's going on?

Data out on Wednesday showed that US consumer prices rose at their fastest pace last month since the early ‘80s, but who you gonna call?

What does this mean?

US consumer prices were 7% higher in December than they were the same time the year before – the biggest jump in 39 years and up on November’s 6.8% gain. And sure, energy and food prices were up by 29% and 6% respectively. But if your latest bank statement made you wince, it’s not just because you filled up on snacks and cranked up the heating in December: clothing, rent, and used cars were all much more expensive too, rising by around 6%, 4%, and 37% respectively. That might go some way to explaining why core inflation – which strips out unstable food and energy prices – rose by the most since 1991.

Why should I care?

For markets: “All win, no lose.”
This data will only fuel expectations that the Federal Reserve (the Fed) will start raising interest rates as soon as March to keep rising prices in check. Still, it’s been trying to put everyone’s minds at rest: the central bank said this week that it can bring down inflation without interrupting economic growth, since plenty of the pandemic-driven shortages should ease on their own. In other words, it mightn’t need heavy-handed rate hikes to do all the work. Investors seemed reassured, sending the US stock market up and putting an end to its five-day losing streak.

The bigger picture: The Fed’s setting an example.
The US isn’t alone: data out from the OECD – an intergovernmental economic organization – showed average inflation across the world’s richest economies was 5.8% higher in November than the same time in 2020 (tweet this). If that trend continues, other central banks could be forced to follow the Fed’s lead and raise rates this year too.

Originally posted as part of the Finimize daily email.

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