Inflation Rate At 40-Year High: What It Means For Your Personal Finances

• U.S. Inflation hits its highest in forty years while the Federal Reserve responds with shift in monetary policy
• Fed is focused on stabilizing prices amid COVID-19 disruptions.
• the Consumer Price Index (CPI) rose 6.8% annually in November, the highest 12-month increase since June 1982, BLS report,

U.S. inflation rate hike continues amid efforts to rebuild the economy, rising to its highest in the last four decades.

According to the latest report from the U.S. Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose 6.8% annually in November, the highest 12-month increase since June 1982. CPI is a measure of inflation that was 0.8% in November on a seasonally adjusted basis after rising roughly 0.9% in October as illustrated by the CPI for All Urban Consumers (CPI-U).

The monthly all items seasonally adjusted increase was the result of broad increases in most component indexes, similar to last month. The indexes for gasoline, shelter, food, used cars and trucks, and new vehicles were among the larger contributors. The energy index rose 3.5 percent in November as the gasoline index increased 6.1 percent and the other major energy component indexes also rose. The food index increased 0.7 percent as the index for food at home rose 0.8 percent,” read the CPI report.

The index for all items (except food and energy) rose 0.5% in November following a 0.6% increase in October. Along with shelter, used cars and trucks, and new vehicles, the indexes for household furnishings and operations, apparel, and airline fares were among those that increased. The indexes for motor vehicle insurance, recreation, and communication all declined in November.

These figures are an indication that inflation continued to spike on November, and according to Dawit Kebede, a senior economist at Credit Union National Association (CUNA), “Supply chain disruptions, higher demand for goods that continue to exceed pre-pandemic levels and increases in COVID-sensitive items such as shelter contributed to the rise.”

As a result the cost of borrowing might rise in the year ahead as the Federal Reserve strives to fight the rising inflation. You can take advantage of the current low rates by refinancing your personal loans and saving your monthly payments on your installment loans.

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Fed makes monetary policy shift

After the inflation rate numbers were made public, the Federal Open Markets Committee (FOMC) held its December meeting which resulted in several major shifts in its monetary policy. For example, the Feds changed its projection on interest rates for the year 2022, now forecasting three spikes in interest rates instead of just one or two as previously expected. It also forecasts not less than 3 interest rates increases in 2022 alone, with two more in 2023, and another two in 2024, leaving the federal funds rate at 2.1% by the end of 2024.

The Fed also announced its tapering plans which means that it will increase its tapering of Treasury and mortgage bond purchases, dropping by $30 billion per month. This is almost double the tapering which was at $15 billion per month previously, which it announced in November. At this rate, Fed’s bond-buying will completely phase out by March 2022, which is expected to once again increase the inflation rate.

“We are prepared to use our tools to make sure high inflation doesn’t get entrenched. This is a strong economy, one in which it’s appropriate for interest rate hikes,” Federal Reserve Chair Jerome Powell said in a news conference after the FOMC meeting.

Increasing Inflation Rate: Fed Committed To Stabilising prices

As mentioned earlier, the latest report BLS revealed that items in many sectors saw increased in prices, including gasoline, shelter, food, used cars and trucks, and new vehicles, the indexes for household furnishings and operations, apparel, and airline fares all of which saw the largest increases in November. For example, gas prices are up 58% over the past 12 months, while beef prices went up by 20.9%.

President Bidens Administration has previously claimed that hourly wages were rising faster than the inflation rate. This could be taken by many as a false claim as the BLS data reveals that, really that is not the case. Not even when gas and food are excluded which still brings the main inflation rate to 4.9%. This is still 0.1% higher than the 4.8% growth in Americans’ hourly wages, going by the BLS November report.

Energy prices have leaped 33.3% in the last 12 months, while the food index increased 6.1 percent. These changes are the largest 12-month increases in those sectors in at least 13 years, according to the BLS. And as prices continue to surge, the Central Bank is more focused on bringing inflation under control.

Observers believe the Federal Reserve was focused on supporting maximum job creation and the recent price spike is believed to be transitory due to supply chain issues particularly due to COVID-related disruptions and increasing holiday demand.