The Consumer Price Index increased 0.5% in December, bringing the key inflation indicator’s year-over-year increase to 7%, the U.S. Bureau of Labor Statistics reported.

The Consumer Price Index soared to 7% on a year-over-year basis in December, the highest level in almost four decades, the bureau reported Wednesday. Economists surveyed by The Wall Street Journal projected the index would soar past 7.1% in December.


“There’s still a lot of scarcity in the economy. Consumers and businesses are in great financial shape, and they’re willing to pay up for more goods, more services, and more labor,” Sarah House, director and senior economist at Wells Fargo, told The Wall Street Journal.

The core price index, which measures inflation of goods less food and energy, increased 0.6% in December, an increase from November’s 0.5% figure, the Bureau of Labor Statistics reported. Food prices grew 6.3% on a year-over-year basis and energy prices soared 29.3% over the last year.

“It’s still hot, hot, hot, and it’s important because we’re now where the Fed worries about that 7% number getting baked into wages and getting more entrenched,” Diane Swonk, chief economist at Grant Thorton, told CNBC. “You’ve got the Fed in panic instead of patient mode, so the risk is overshooting … We’re now in a position of the Fed chasing instead of anticipating. It’s worrisome.”

Federal Reserve Chairman Jerome Powell said Tuesday during his confirmation hearing that the U.S. economy is strong enough to begin a tighter monetary policy, including increasing interest rates and ending its monthly asset purchases, CNBC reported.

“As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” Powell said in the hearing, according to CNBC. “At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.”

Meanwhile, the U.S. recorded an increase of just 199,000 jobs in December, far below experts’ prediction of around 422,000. Unemployment dipped to 3.9% in December from November’s 4.1% figure.

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