Likewise, Procter & Gamble said last week that it plans to raise prices for detergents like Tide, Gain, and Downy and for personal care products. On Thursday, McDonald’s said that while sales last year grew at a healthy pace, higher costs for food and paper products and the need to raise pay to attract and keep workers eroded profits even after it had raised prices 6% last year. The PCE index tracks actual purchases consumers make each month, while the CPI follows a fixed market basket of goods.Įarlier this month, the government said the CPI jumped 7% last year, also the fastest pace in nearly four decades. Though the consumer price index is a better-known barometer, the Fed tends to track the PCE in setting its interest rate policies. The inflation figure that the government reported Friday is its personal consumption expenditures index.
While rising wages are good for employees, they can also elevate inflation if they aren’t offset by efficiency gains. Powell has said that a sharp rise in pay and benefits, reported in November, was a key reason why the Fed began shifting its policy toward higher interest rates. But over the past three months, the increase slowed from 1.3% to 1% and dropped even more for a category that includes restaurant and hotel workers. That was the biggest rise in two decades. The Labor Department said that workers’ salaries and benefits jumped 4% last year. Such a “wage-price spiral,” which the United States hasn’t experienced since the 1970s, can make inflation difficult to cool.Ī separate report Friday provided some signs of cooling on that front.
Umark 5.8 key driver#
Powell also said the Fed is increasingly focused on the question of whether rising wages are acting as a primary driver of inflation, by forcing companies to charge more to cover their higher labor costs. He cautioned that higher prices “have now spread to a broader range of goods and services,” after initially affecting sectors of the economy, like factory-made products for homes, that were most disrupted by the pandemic. Speaking at a news conference, Powell acknowledged that inflation has gotten “slightly worse” in the past month. Spending on autos, electronics and other goods jumped 12% in 2021, the government reported Wednesday, the biggest increase since 1946.īesides raising interest rates, Chair Jerome Powell said Wednesday that the Fed will move to shrink its huge $8.9 trillion of bond holdings this year, another step that will likely tighten credit, slow spending and potentially weaken the economy.
But the rebound occurred so quickly after the pandemic shutdowns that it left many companies flat-footed, with fewer workers and supplies than they needed. The economy is expanding at its fastest pace in decades, and job creation reached a five-decade high last year. Core prices rose 0.5% for a second straight month. That was up from a 4.7% year-over-year rise in core prices in November.įrom November to December, prices rose 0.4%, down from a 0.6% increase from October to November.
Most analysts still expect inflation to decelerate this year, though it will likely remain high as rents and wages increase.Įxcluding the volatile food and energy categories, so-called core prices rose 4.9% last year, the biggest increase since 1983. “You’re going to see the labor market continue to heal, and, the pandemic permitting, the consumer will have enough firepower to grow spending at a reasonable rate as the year goes on,” said Joshua Shapiro, chief U.S. Still, economists say steady job gains and increased savings should eventually drive more spending later this year, especially if the omicron wave keeps fading. Consumers are particularly worried about inflation eroding their incomes. In another cautionary sign, a measure of consumer sentiment dropped this month to its lowest level in more than a decade, the University of Michigan reported Friday. That would be down drastically from a strong 6.9% rate in the final three months of 2021. With consumer spending likely remaining weak, economists project that growth will slow in the first three months of the year to a 1.5% annual rate or even less. DeSantis: Young conservatives debate GOP's future
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