The Labor Department said Thursday that its producer price index, which measures inflation at the wholesale level before it reaches consumers, surged 9.7% in December from the year-ago period. It marked the highest figure on record since the government began tracking the data in 2010.
Still, there are some signs that inflation could be decelerating: On a monthly basis, prices rose just 0.2% in December following a revised gain of 1% in November. Economists surveyed by Refinitiv expected producer inflation to rise by 9.8% on an annual basis and 0.4% from the previous month.
Food prices declined 0.6% in December after climbing 1.2% in November, while energy prices dropped 3.3%, following a 2% gain the previous month.
Core inflation at the wholesale level, which excludes the more volatile measurements of food and energy, increased 0.4% in December, down from a 0.8% jump in November. Over the past 12 months, core prices were up 6.9%.
The surge in wholesale prices comes on the heels of a separate Labor Department report released a day earlier that showed consumer prices climbed 7% in December from the previous year, the biggest increase since June 1982, when inflation hit 7.1%. Consumers are paying more for everyday necessities, including groceries, gasoline and cars.
The eye-popping reading – which marked the seventh consecutive month the gauge has been above 5% – will likely amp up pressure on the Federal Reserve to begin hiking interest rates as soon as March in order to combat the recent price surge. Hiking interest rates tends to create higher rates on consumers and business loans, which slows the economy by forcing them to cut back on spending.
Chairman Jerome Powell has already signaled the U.S. central bank plans to speed up its withdrawal of support for the U.S. economy in order to combat inflation, which has been higher and longer lasting than policymakers initially expected.
"As we move through this year, if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year," Powell told the Senate Banking Committee during his confirmation hearing on Tuesday. "At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy."