The Consumer Price Index, the measurement tool used to gauge inflation, rose at its fastest pace in nearly 40 years.
According to the latest report by the US Department of Labor, prices of consumer goods rose 7% between December 2020 and December 2021 –– the highest price increase rate since 1982. Last year, prices increase an average of 0.5% per month, impacting households already suffering from pandemic-related unemployment.
While economists predicted such a high rate of price increase, the record-breaking inflation comes amid a shortage of goods and as workers seek living wages.
Used cars were among the goods that went up the highest in price, rising 3.7% in 2021. The cost of shelter made up one-third of the total rise in prices, went up 4.1% in 2021.
If the trend continues, the US could experience an economical nightmare not seen since the late 1970s and early 1980s: stagflation, or prices going up while the economy slows.
That's what happened during Jimmy Carter's presidency and led to Ronald Regan's 1980 victory.
A common solution to stagflation is to lower interest rates, but they've been at nearly zero since the start of the pandemic. Raising these rates could help improve inflation, but could simultaneously slow down the economy –– a major concern in the UK right now after its central bank raised rates last month.
The good news is that the economy seems to be improving from the pandemic recession overall, but relies on consumers to keep spending, CNN Business reported.