Gas And Meat Prices Finally Fall—But Cars, Housing, Medical Care And More Still Fuel Inflation Surge

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Topline

Though long-rising gas and meat prices are finally starting to cool off, surging prices for a slew of critical goods—including used cars, food and housing—helped inflation notch a new 39-year high in December, reflecting the supply chain constraints still crippling the market amid red-hot consumer demand.

Meat prices fell for the first time in seven months, but used car and trucks are now headlining a … [+] decades-high spike in inflation.

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Key Facts

Though concerns over the highly contagious omicron variant helped energy prices fall last month for the first time since April, consumer prices jumped another 7%, marking the highest rate since June 1982, according to the Labor Department’s consumer price index report on Wednesday.

The index for meat and eggs also declined in December, falling 0.4% after rising at least 0.7% in each of the last seven months, with beef and pork prices falling 2% and 0.8%, respectively, after recent sharp increases, the government said.

Now leading the inflation surge: Used car and truck prices skyrocketed about 3.5% in December, notching their biggest increase since June and climbing about 37.3% over the past year, driven by a global shortage of the computer chips that control everything from navigation systems to windows.

Goods and services making up a large portion of consumer expenditures also drove up inflation: Housing prices climbed 0.4% for the third month in a row, while medical care services increased 0.3%.

The cost of fruits and vegetables climbed 0.9%, while other foods like margarine, lunch meats and frozen seafood jumped 3.8%, 2.7% and 1.7%, respectively.

Key Background

Amid a staggering rise in inflation that’s rattled markets in recent months, President Joe Biden has called tempering price spikes a “top priority” for his administration. Though officials have claimed Democrats’ Build Back Better spending plan would help inflation by reducing the cost of child care and elder care, Sen. Joe Manchin (D-W.Va.) has effectively stalled the plan over concerns its projected cost of $1.8 trillion would further ramp up consumer prices. Meanwhile, Biden has made efforts to tackle some of the price spikes leading the inflationary surge, releasing emergency oil reserves in November to help bolster supply during the holiday season and earlier this month promising to ramp up car manufacturing.

Crucial Quote

“Current car prices clearly reflect a lack of supply,” Brian Deese, director of the White House’s National Economic Council, said after the report, adding, “We need to build the productive capacity of the U.S. economy.”

What To Watch For

The decline in gas prices could be short-lived. Bolstered by stronger-than-anticipated demand and lingering supply concerns, oil prices jumped nearly 4% to a two-month high on Tuesday. The spike comes just one day after Federal Reserve Chair Jerome Powell said the economic impact of the omicron variant should be “short-lived,” adding: “what we are seeing is an economy that functions through these waves of Covid.” Despite their monthly decline, gas prices have skyrocketed 49.6% over the past year.