Consumer Prices Rise At Lowest Rate in 5 Years

Consumer prices climbed slightly higher in the final month of 2020 as gas and food prices rose alongside coronavirus cases. 

The Labor Department reported that the consumer price index increased by a seasonally adjusted 0.4% in December, the smallest bump in five years. A notable 8 % increase in gasoline prices accounted for more than half of the price increases. 

Prices rose 1.4% in 2020, ending a year that was complete with minimal inflation, dramatic price swings for certain items, and economic uncertainty for many Americans. 

Prices steadily climbed for the past six of seven months after falling as low as 0.8% in the early months of the pandemic when lockdowns and safety measures were put in place.

Grocery prices rose by 0.4% during December after experiencing a 0.1% fall in the month prior. Clothing prices also saw a significant boost as stores avoided discounting during the 2020 holiday season. 

However, Labor Department data showed declines in medical care and transportation along with other service-related sectors who have experienced more hurdles in recovery than those in the goods-based sectors. 

December saw a 1.2% decline in used vehicle prices. It more than likely won’t be raising alarms for the industry, which has enjoyed a 10% overall price increase and a steady stream of car shoppers throughout the year. Most of the decline is a result of structural challenges in the auto industry supply chain.  

Economists surveyed by the Wall Street Journal expect economic recovery to be at full speed by the second half of 2021. 

“Assuming we do see a full reopening in the months ahead, the combination of increased demand in an economy that has seen supply capacity shrink is likely to generate rapid price increases in several components of the inflation basket,” said ING Bank’s chief international economist James Knightly. 

Federal Reserve officials are planning to maintain low interest rates throughout the economic recovery, even if the 2% inflation target is reached. Officials cut short term interest rates to 0.25% in March as an effort to keep the economy afloat.

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