US inflation hits 39-year high as consumer prices jump 7%

Last month, inflation in the US hit its highest level in over 40 years, with a 7% increase over the previous year. 

This is driving up household costs, eroding wage growth, and putting pressure on President Joe Biden and the Federal Reserve to confront what has become the largest threat to the US economy. 

This is the greatest growth since June 1982, and it surpasses the 6.8% increase in November. 

As part of a quick rebound from the pandemic recession, prices for vehicles, petrol, food, and furniture increased dramatically in 2021.

Government cash injections and ultra-low loan rates boosted demand for commodities, while vaccinations gave people the confidence to eat out and travel.

As Americans increased their spending, supply networks were constrained by labour and raw material shortages, exacerbating pricing pressures.

Watch | US inflation at nearly 40-year high

The Labor Department reports that a measure of inflation that excludes volatile food and gas prices increased by 5.5 percent in December, the highest level in decades.

Inflation increased by 0.5 percent in November, compared to 0.8 per cent the previous month. 

Inflation isn't just a concern in the United States.

In December, inflation in the 19 European countries that use the euro currency increased by 5% over the previous year, the highest increase on record.

Companies of all sizes are adapting to the best of their abilities. 

Businesses trying to employ have increased wages, but rising prices for goods and services have undermined many Americans' gains.

According to polls, lower-income families have been hit the hardest, and inflation has begun to supplant even the coronavirus as a national concern.

Nothing like that has happened in the United States since the early 1980s.

Fed Chair Paul Volcker responded by raising interest rates to excruciatingly high levels — the prime rate for banks' best customers reached 20% in 1980 — and plunging the economy into a prolonged recession.

However, Volcker was successful in reducing inflation, which had been in double digits year over year for much of 1979-1981.

(With inputs from agencies)