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Consumer Price Index Points to Elevated Inflation and Higher Interest Rates in 2022

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Economics

Consumer Price Index Points to Elevated Inflation and Higher Interest Rates in 2022

Inflation is at its highest peak since the early 1980s, and 2022 may see more gains


January 14, 2022
CPI increase graphic
Image: Stock.adobe.com

In December 2021, the Consumer Price Index recorded a 7% year-over-year gain, the highest in nearly 40 years as a result of pandemic-driven supply-chain issues and a significant increase in government spending, according to NAHBNow. In contrast, the CPI measured an average annual growth rate of just 1.8% during the 2010s.

The NAHB predicts that the Federal Reserve will raise the federal funds rate three times in 2022 and taper asset-backed security purchases at an accelerated pace, which will cause interest rates to rise throughout the year. The second week of January saw a continuation of gains from the previous year as the 10-year Treasury rate rose from 1.4% at the start of December to higher than 1.7% into 2022.

Clearly, these increases highlight the importance of taming building material costs, including lumber prices that are rising yet again and have expanded beyond $1,100 per thousand board feet. New NAHB analysis finds that a key cause behind this price growth is insufficient production. For example, during the third quarter of 2021, domestic sawmill output was 1.3% lower than the third quarter of 2020.

Additional signs of inflation include a tighter labor market and growing wages. According to BLS estimates, job growth in December disappointed: The economy added only 199,000 jobs. Although the unemployment rate fell back to 3.9%, there is some evidence that labor market data are not fully accounting for the growing gig economy.

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