Inflation Hit a 39-Year Peak, Causing Consumer Prices to Reach Historic Levels
Consumer prices jumped 7% in 2021.
By December 2021, the US inflation rate increased the most it had in a single year since 1982. According to the Bureau of Labor Statistics, the consumer price index (CPI) rose by 7% in 2021. The consumer price index, for those who haven't taken an economics class in a minute, is the average change-over-time paid by consumers (that's us!) for goods and services.
The biggest price hikes occurred in June and October of 2021 when the CPI rose by 0.9% each time. Overall, the cost of groceries increased by 6.3%, while the cost of food at restaurants increased by 6.5%. The cost of new vehicles rose by 11.8%, and that of apparel rose by 5.8%. The cost of shelter, i.e. housing, rose by 4.1%. Transportation service costs increased by 4.2%, and medical service costs increased by 2.5%.
Basically, the cost of living has increased across the board. We've reported on everything from Oreos to chicken tenders becoming more expensive, as well as price hikes at chains such as Domino's and Little Caesars.
The cause of inflation is multifaceted. Demand for certain goods and services increased since the pandemic began in March 2020, and again when people felt safer leaving their homes, traveling, and going out. Meanwhile, the cost to produce and supply these goods also increased. The supply chain has been constrained by labor shortages, increased cost of certain production materials, and shortages of other production materials.
A perfect example is the recent shortage of Champagne ahead of New Year's Eve. In earlier months of the pandemic, demand for the product dropped by 18%. In 2021, the demand for Champagne increased by 20%. This puts pressure on suppliers to not only quickly produce more of the product but to also get their hands on packing materials, including glass bottles. A shortage in glass bottles is currently one of the leading factors behind Corona and Modelo increasing in cost by 2% this year.
In layman's terms, everything is just harder right now. With the increase of COVID-19 cases due to the Omicron variant, more workers are falling sick and having to leave jobs in the service, shipping, and production industries. Climate change is impacting certain crops, resulting in smaller yields. Between climate change and labor shortages, many factories are understaffed and undersupplied. It's a mess.
Experts are unsure when or how things will return to normal. Many economists and other industry insiders expect inflation to continue to rise in 2022. Thrillist spoke to supply chain expert Adam Compain, the Senior Vice President of project44, and he doesn't expect the supply chain component of this issue to end quickly.
"Because of how interconnected the supply chains are, and how complex the issue is, we expect that the challenges and delays will last well into 2022," Compain said.
Bloomberg reported that inflation, not COVID-19, will be the biggest risk facing the global economy this year. Experts believe that the main factor that will drive inflation down this year will come from the Federal Reserve, which is the central bank of the United States. On January 12, the Federal Reserve announced that it would be taking measures to contain inflation this year.