Mundana
economy
The Fed’s preferred inflation gauge climbed at the fastest pace in nearly four decades, as Omicron clouded the outlook for 2022.
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As the year draws to a close, inflation remains stubbornly high and the Omicron variant of the coronavirus poses looming uncertainty about what might come next, keeping the pressure on the Federal Reserve and President Biden to do more to tame rising prices.
The Personal Consumption Expenditures price index, which the Fed officially targets when it aims for 2 percent annual inflation on average over time, climbed 5.7 percent in November from a year earlier — the fastest pace since 1982 — the Commerce Department said on Thursday.
It was yet another sign that high prices, which many economists once hoped would fade quickly, are instead persisting, burdening consumers and worrying government officials.
The data came as a rising number of Omicron infections makes the inflation and economic outlook hazier. On one hand, the virus could slow the growth of the economy and of prices if it prompts furloughs at a time when the government is no longer stepping in to fill the void, costing households and hurting demand. On the other hand, surging global caseloads could push prices up as they close factories and keep cars, furniture, toys and other goods in short supply.
“I do think that demand is going to be affected by this,” said Aneta Markowska, the chief financial economist at Jefferies. “Every time a Broadway show closes, a restaurant closes, that’s a furlough.”
The virus is making the trajectory for economic growth less certain. Most forecasters expect the economy to expand rapidly next year but at a slower place than in 2021: Fed officials last week projected that the economy would grow by 4 percent in 2022, roughly double what is considered typical but less than 5.5 percent this year. If the virus proves crushing, though, growth could weaken sharply early in the year.
Which force is more powerful when it comes to prices — the hit to demand caused by Omicron-tied closures and layoffs, or the continued pressure on supply chains as consumers keep buying easy chairs and yoga pants and as factories shutter — will matter hugely.
Earlier this year, big price increases were largely reserved to goods that were in short supply as demand surged and as overtaxed shipping lines struggled to keep up. Officials expected that situation to sort itself out as the economy reopened and returned to normal.
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