By Lucia Mutikani

WASHINGTON, (Reuters) – U.S. consumer price rose solidly in December, as used cars and rental housing continued to gain. This culminated in the biggest annual increase in inflation since nearly forty years. It also boosted expectations that the Federal Reserve would raise interest rates in March.

On Wednesday’s report by the Labor Department, the data from last week showed that the labor market is at or close to maximum employment. In testimony before Senate Banking Committee, Jerome Powell, Fed Chair and Chief of Fed, stated Tuesday that the U.S. central banks was ready to take steps to prevent high inflation becoming “entrenched”. This statement came during the Fed Chairman’s second four-year term.

“The Fed is going to be forced to begin raising rates in March and depending on the political pressure on them – from both sides of the aisle – they are going to have to raise rates four or more times in this year and potentially more than that next year,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

After a 0.8% increase in November, the consumer price index rose 0.5% to 0.5% last month. Higher rents meant that consumers paid more to eat, even though food prices increased 0.5% in November. After rising 6.1% in November and October, gasoline prices dropped 0.5%.

The CPI soared 7.0% in the twelve months to December. This was the largest year-on-year rise since June 1982. It followed an increase of 6.8% in November.

Reuters polled economists to forecast that the CPI would grow 0.4% annually and shoot up 7.0% year-on.

High inflation is a result of the COVID-19 pandemic that engulfs supply chains. High living costs are affecting President Joe Biden’s approval.

U.S. stocks were higher after relief at the expected price increase last month. Dollar fell against other currencies. The U.S. Treasury price rose.

INFLATION BELOW TARGET

Budding wage pressures are helping to lift inflation, which is already well over the Fed’s target of 2%. According to the government, unemployment fell 22 months ago to 3.9% in December.

The odds of an interest-rate hike in March are about 85%, with a minimum of three quarter-point increases by year’s end. [FEDWATCH]

According to economists, the annual CPI rate will probably peak in March or December. The Institute for Supply Management Survey last week found that suppliers are reporting an improvement in their deliveries. This is encouraging evidence of supply disruptions.

However, the Omicron variant could cause a surge in COVID-19, which may slow down progress toward normalizing supply chains.

The CPI rose 0.6% in December, after rising 0.5% November.

Rents boosted the core CPI, and owners’ equivalent rent for primary residence (which is what a homeowner receives from renting their home) rose a solid 0.4% over the third consecutive month.

After increasing 2.5% each month, prices for used vehicles and trucks increased 3.5%. This is likely due to Hurricane Ida which caused the surge. It destroyed thousands of vehicles and other property.

Motor vehicle prices increased 1.0% in January, which marked the ninth consecutive month that saw gains. Motor vehicle production has been affected by a global shortage of semiconductors.

The prices for household furniture and services rose 1.1%. However, the apparel index rose 1.7%. This is the biggest increase in price since January 2021. Health care costs increased 0.3%.

The core CPI increased 5.5% in the twelve months to December. This was the biggest year-over-year increase since February 1991. It followed an improvement of 4.9% in November. It is evident that February was the peak of year-on–year core CPI.