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Consumer prices are even higher as businesses try to keep up with people eager to buy

MARY LOUISE KELLY, HOST:

Even when you know you've got a fever, it can be eye-opening to take your temperature. And in that vein, we have known for a while that prices are rising at a feverish pace. Today, we got the precise reading on just how much that is hitting people's budgets. The government says consumer prices in December were a sizzling 7% higher than a year ago. That's an even bigger jump than we saw in November, which was already the highest inflation rate in nearly 40 years. NPR's Scott Horsley joins me.

Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Mary Louise.

KELLY: What's going on? What's behind these prices?

HORSLEY: You know, this is a story we've been seeing throughout the pandemic. There's just a big mismatch between consumers, who are eager to buy stuff, and businesses that are short on people and materials and having a hard time keeping up. In some of the previous months, you could point to a few items on the shopping list where prices had really taken off. But now the inflation bug is spreading, and prices were elevated in more than two out of three categories that the government keeps track of.

KELLY: So what does that mean? Give me an example.

HORSLEY: One of the big places we're seeing sticker shock is on used car lots. Pat Ryan runs a car buying app called CoPilot. He says demand for cars and trucks really took off last spring about the time those $1,200 relief payments went out. But as we know, the supply of new cars was limited by that shortage of semiconductors, so more people started shopping for used cars. And the price of used cars and trucks in December was up more than 37% from a year ago.

PAT RYAN: There is a question of, how long will consumers pay new-car prices for 3-year-old cars? For most of 2021, people have been paying new-car prices for 2-, 3-, 4-year-old cars.

HORSLEY: Now, Ryan says demand for used cars has softened a little bit in the last month or so, which could be just a seasonal thing. A lot of people don't like shopping for cars when there's snow on the ground. So what happens to prices this year is going to depend a lot on how quickly new-carmakers are able to solve their chip shortage and crank up production.

KELLY: And what about some of the other things we've been hearing so much about - the high price of gas, the high price of groceries - because those are also driving inflation, right?

HORSLEY: Yeah, grocery prices are still climbing, although not as fast as they were in previous months. Gasoline prices actually fell in December, when omicron first hit. But gas still costs almost 50% more than it did a year ago because people are moving around more. What's more, crude oil prices have started climbing again, so the little bit of relief that drivers got at the gas pump in December could be short-lived. We're also seeing rising rents, and that's another growing factor in inflation reflecting increase in housing costs across the country.

KELLY: Any relief in sight?

HORSLEY: You know, most forecasters do expect to see some moderation of inflation this year, although price hikes are likely to remain bigger than we're used to and certainly bigger than the Federal Reserve's target, which is 2%. Fed Chairman Jerome Powell told lawmakers yesterday he expects some relief this year from the supply chain bottlenecks, which have been contributing to rising prices. But Powell says a return to more normal production patterns is just hard to predict, like the pandemic itself.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: Inventories are moving up, and delivery times have shortened. And that's a good thing. But on the other hand, omicron can really - particularly if China sticks to a no-COVID policy, omicron can really disturb the supply chains again. Although, it could be briefer this time.

HORSLEY: China has been quick to shutter factories and idle ports when there's any sign of workers getting sick. And with the omicron variant, China's seen some of the biggest citywide lockdowns in the last two years. That, of course, could have ripple effects on companies and consumers in this country and could prolong the inflationary pressure.

KELLY: Did Powell in his testimony there drop any hints as to what he might be planning to do about it?

HORSLEY: Well, in order to get inflation in check, forecasters think the Fed's going to have to raise interest rates and maybe sooner, maybe more than had been expected just a few months ago. Fed policy officials have telegraphed the likelihood of three interest rate hikes this year. The first of those could come as early as March. And with today's big inflation number, an early rate hike is looking more and more likely.

KELLY: Thank you, Scott.

HORSLEY: You're welcome.

KELLY: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.