US inflation jumped 7.5% in the past year, a 40-year high

at the Federal Reserve. We are strongly committed to achieving the monetary policy goals that Congress has given us maximum employment and price stability Today. In support of these goals, the Federal Open Market Committee kept its policy interest rate near zero and stated its expectation that an increase in this rate would soon be appropriate. The committee also agreed to continue reducing its net asset purchases on the schedule we announced in december, bringing them to an end in early March. As I will explain against a backdrop of elevated inflation and a strong labor market. Our policy has been adapting to the evolving economic environment and it will continue to do so, Inflation remains well above our longer run goal of two supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. In particular bottlenecks and supply constraints are limiting how quickly production can respond to higher demand in the near term. These problems have been larger and longer lasting than anticipated, exacerbated by waves of the virus. Like most forecasters, we continue to expect inflation to decline over the course of the year. We understand that high inflation imposes significant hardship, especially on those least able to meet the high, higher costs of essentials like food, housing and transportation. In addition, we believe that the best thing we can do to support continued labor market gains is to promote a long expansion and that will require price stability. We're committed to our price stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched. And we'll be watching carefully to see whether the economy is evolving in line with expectations. Today, the committee issued a set of principles that will provide a foundation for our future decisions. These high level principles clarify that the federal funds rate is our primary means of adjusting monetary policy and that reducing our balance sheet will occur after the process of raising interest rates has begun, reductions will occur over time in a predictable manner, primarily through adjustments to re investments so that securities roll off our balance sheet over time, we intend to hold securities in the amounts needed for our ample reserves operating framework. And in the longer run, we envisioned holding primarily Treasury securities.

Inflation soared over the past year at its highest rate in four decades, hammering America’s consumers, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates across the economy.The Labor Department said Thursday that consumer prices jumped 7.5% last month compared with 12 months earlier, the steepest year-over-year increase since February 1982. Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year.When measured from December to January, inflation was 0.6%, the same as the previous month and more than economists had expected. Prices had risen 0.7% from October to November and 0.9% from September to October.There are few signs that inflation will slow significantly anytime soon. Most of the factors that have forced up prices since last spring remain in place: Wages are rising at the fastest pace in at least 20 years. Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the nation’s busiest, out sick last month. Many products and parts remain in short supply as a result.The steady surge in prices has left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and as a serious threat to President Joe Biden and congressional Democrats as midterm elections loom later this year.The Fed and its chair, Jerome Powell, have pivoted sharply away from the ultra-low-interest rate policies that the Fed pursued since the pandemic devastated the economy in March 2020. Powell signaled two weeks ago that the central bank would likely raise its benchmark short-term rate multiple times this year, with the first hike almost surely coming in March. Investors have priced in at least five rate increases for 2022.Over time, those higher rates will raise the costs for a wide range of borrowing, from mortgages and credit cards to auto loans and corporate credit. For the Fed, the risk is that in steadily tightening credit for consumers and businesses, it could trigger another recession.Many large corporations, in conference calls with investors, have said they expect supply shortages to persist until at least the second half of this year. Companies from Chipotle to Levi’s have also warned that they will likely raise prices again this year, after having already done so in 2021.Chipotle said it’s increased menu prices 10% to offset the rising costs of beef and transportation as well as higher employee wages. And the restaurant chain said it will consider further price increases if inflation keeps rising.“We keep thinking that beef is going to level up and then go down, and it just hasn’t happened yet,” said John Hartung, the company’s chief financial officer.Executives at Chipotle, as well as at Starbucks and some other consumer-facing companies, have said their customers so far don’t seem fazed by the higher prices.Levi Strauss & Co. raised prices last year by roughly 7% above 2019 levels because of rising costs, including labor, and plans to do so again this year. Even so, the San Francisco-based company has upgraded its sales forecasts for 2022.“Right now, every signal we’re seeing is positive,” CEO Chip Bergh told analysts.Many small businesses, which typically have lower profit margins than larger companies and have struggled to match their sizable pay raises, are also raising prices. The National Federation for Independent Business, a trade group, said it found in a monthly survey that 61% of small companies raised their prices in January, the largest proportion since 1974 and up from just 15% before the pandemic.“More small business owners started the new year raising prices in an attempt to pass on higher inventory, supplies and labor costs,” said Bill Dunkelberg, the NFIB’s chief economist. “In addition to inflation issues, owners are also raising compensation at record-high rates to attract qualified employees to their open positions.”Those pay gains could eventually force additional price hikes as companies seek to cover the costs of the higher wages.In the past year, sharp increases in the costs of gas, food, autos and furniture have upended many Americans’ budgets. In December, economists at the University of Pennsylvania’s Wharton School estimated that the average household had to spend $3,500 more than in 2020 to buy an identical basket of goods and services.___AP Business Writers Dee-Ann Durbin in Detroit and Anne D’Innocenzio in New York contributed to this report.

WASHINGTON —

The Labor Department said Thursday that consumer prices jumped 7.5% last month compared with 12 months earlier, the steepest year-over-year increase since February 1982. Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year.

When measured from December to January, inflation was 0.6%, the same as the previous month and more than economists had expected. Prices had risen 0.7% from October to November and 0.9% from September to October.

There are few signs that inflation will slow significantly anytime soon. Most of the factors that have forced up prices since last spring remain in place: Wages are rising at the fastest pace in at least 20 years. Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the nation’s busiest, out sick last month. Many products and parts remain in short supply as a result.

The steady surge in prices has left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and as a serious threat to President Joe Biden and congressional Democrats as midterm elections loom later this year.

The Fed and its chair, Jerome Powell, have pivoted sharply away from the ultra-low-interest rate policies that the Fed pursued since the pandemic devastated the economy in March 2020. Powell signaled two weeks ago that the central bank would likely raise its benchmark short-term rate multiple times this year, with the first hike almost surely coming in March. Investors have priced in at least five rate increases for 2022.

Over time, those higher rates will raise the costs for a wide range of borrowing, from mortgages and credit cards to auto loans and corporate credit. For the Fed, the risk is that in steadily tightening credit for consumers and businesses, it could trigger another recession.

Many large corporations, in conference calls with investors, have said they expect supply shortages to persist until at least the second half of this year. Companies from Chipotle to Levi’s have also warned that they will likely raise prices again this year, after having already done so in 2021.

Chipotle said it’s increased menu prices 10% to offset the rising costs of beef and transportation as well as higher employee wages. And the restaurant chain said it will consider further price increases if inflation keeps rising.

“We keep thinking that beef is going to level up and then go down, and it just hasn’t happened yet,” said John Hartung, the company’s chief financial officer.

Executives at Chipotle, as well as at Starbucks and some other consumer-facing companies, have said their customers so far don’t seem fazed by the higher prices.

Levi Strauss & Co. raised prices last year by roughly 7% above 2019 levels because of rising costs, including labor, and plans to do so again this year. Even so, the San Francisco-based company has upgraded its sales forecasts for 2022.

“Right now, every signal we’re seeing is positive,” CEO Chip Bergh told analysts.

Many small businesses, which typically have lower profit margins than larger companies and have struggled to match their sizable pay raises, are also raising prices. The National Federation for Independent Business, a trade group, said it found in a monthly survey that 61% of small companies raised their prices in January, the largest proportion since 1974 and up from just 15% before the pandemic.

“More small business owners started the new year raising prices in an attempt to pass on higher inventory, supplies and labor costs,” said Bill Dunkelberg, the NFIB’s chief economist. “In addition to inflation issues, owners are also raising compensation at record-high rates to attract qualified employees to their open positions.”

Those pay gains could eventually force additional price hikes as companies seek to cover the costs of the higher wages.

In the past year, sharp increases in the costs of gas, food, autos and furniture have upended many Americans’ budgets. In December, economists at the University of Pennsylvania’s Wharton School estimated that the average household had to spend $3,500 more than in 2020 to buy an identical basket of goods and services.

___

AP Business Writers Dee-Ann Durbin in Detroit and Anne D’Innocenzio in New York contributed to this report.

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