Inflation came in strong and wage growth remained elevated at the end of 2021, setting the stage for a challenging economic year in which the Federal Reserve and White House will try to maintain momentum in the job market while wrestling price gains under control.
The Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, came in at 5.8 percent in December, up from 5.7 percent the prior month. That beat out the prior month to become the fastest pace since 1982.
climbed 4 percent in the year through the fourth quarter, with its wages and salaries measure picking up by 4.5 percent.
That marked the fastest pace of increase for both the overall compensation and the wages and salaries measure since the data series started two decades ago.
taken steps aimed at relieving pressure on choked supply chains, the job of slowing down demand to bring prices under control rests primarily with the Fed.
produced by the Federal Reserve Bank of New York that incorporates backlogs, delivery times and inventories.
Inflation sped up starting last year as people bought more goods, aided by repeated government relief checks and other federal benefits. The world’s factories and shipping lines have struggled to keep up with demand, resulting in rising prices for cars, lumber and clothing. While spending has moderated somewhat recently — it fell in December as Omicron spread, as goods consumption declined — it is unclear whether that is a blip caused by the pandemic or a lasting pullback.
Fed officials have been watching for signs that inflation, which they have projected will ease to less than 3 percent by the end of the year, might instead linger.
“We are attentive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation,” Jerome H. Powell, the Fed’s chair, said during a news conference on Wednesday. Friday’s data could offer officials some slight reprieve.
Mr. Powell had in December specifically cited the previously Employment Cost Index reading — which came in high during the third quarter — as one reason that the Fed had decided to shift from stoking growth to preparing to fight back if inflation becomes long-lasting.
The fact that the measure did not pick up as sharply as expected in the final quarter of the year could give investors some confidence that the central bank’s policy-setting group, the Federal Open Market Committee, will not further speed up its plans to withdraw economic help.
University of Michigan survey has shown sentiment faltering as prices have risen, and the Conference Board’s index ticked down in January.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
“You have very high inflation, so people are seeing an erosion of their purchasing power,” said Dana M. Peterson, chief economist at The Conference Board, noting that the resurgent virus is also to blame. “People will have higher confidence once we’re beyond Omicron.”
For now, it is a moment of pronounced economic uncertainty.
Ashley Fahr, the owner of the culinary company and event space La Cuisine in Venice, Calif., said rising grocery costs began to bite at a difficult moment — just before Omicron began to surge, causing people to pull back from activities like the cooking classes and catering events she offers.
She noticed in December that her food bill had gone up by about 15 percent, chipping away at her margins, and passed about 5 percent of that on to customers while absorbing the rest of the increase.
“I didn’t want to quote a number people would balk at,” she said.
Ms. Fahr said she pays her workers — most of whom are independent contractors — competitive wages and that it’s hard to keep up with rising prices and still turn a profit. She is watching to see what other local caterers and cooking classes do with their pricing — and whether they begin to pass on the full increase to customers.
“If everyone else does it, I’ll do it too,” Ms. Fahr said.
That sort of logic is what economic officials worry about. If businesses and consumers begin to expect prices to steadily rise, they may begin to accept instead of resisting them — and when inflation gets baked into expectations, it might spiral upward year after year, economists worry.
“What we’re trying to do is get inflation, keep inflation expectations well anchored at 2 percent,” Mr. Powell, the Fed chair, said at his news conference this week. “That’s always the ultimate goal.”
Americans are, by many measures, in a better financial position than they have been in many years. They also believe the economy is in terrible shape.
This is the great contradiction that underlies President Biden’s poor approval ratings, recent Republican victories in state elections and the touch-and-go negotiations over the Biden legislative agenda. It presents a fundamental challenge for economic policy, which has succeeded at lifting the wealth, incomes and job prospects of millions of people — but has not made Americans, in their own self-perception, any better off.
Workers have seized the upper hand in the labor market, attaining the largest raises in decades and quitting their jobs at record rates. The unemployment rate is 4.6 percent and has been falling rapidly. Cumulatively, Americans are sitting on piles of cash; they have accumulated $2.3 trillion more in savings in the last 19 months than would have been expected in the prepandemic path. The median household’s checking account balance was 50 percent higher in July of this year than in 2019, according to the JPMorgan Chase Institute.
Yet workers’ assessment of the economy is scathing.
In a Gallup poll in October, 68 percent of respondents said they thought economic conditions were getting worse. The share who thought things were getting better was lower than in April 2009, when the global financial crisis was still underway. And it is not merely a partisan response to the Biden presidency. In the University of Michigan’s consumer sentiment survey, Republicans rate current economic conditions worse than Democrats do — but both groups give ratings about as low as they did in the early 2010s, when unemployment was much higher and Americans’ finances were a wreck.
shortages and other inconveniences that do not show up in inflation data but reflect the same underlying phenomenon.
data from the Atlanta Fed. Many retirees receive pensions that are not adjusted for inflation.
And it is middle- and high-income earners whose pay gains were least likely to have kept up with inflation. Over the 12 months that ended in September, those in the top quarter of earners experienced 2.7 percent gains in hourly earnings, compared with 4.8 percent for the lowest quarter of earners. For lower earners, that follows years leading up to the pandemic in which pay gains exceeded inflation rates.
Understand the Supply Chain Crisis
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Almost anything manufactured is in short supply. That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.
Now, ports are struggling to keep up. In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up. The chaos in global shipping is likely to persist as a result of the massive traffic jam.
The details of what a person buys can have an outsize effect on how acutely he or she feels the pain of inflation. For someone who has had no need to buy an automobile this year, steep inflation in cars and trucks has been a nonissue.
wrote in 1997. The idea of inflation, he continued, evokes “arbitrary injustice, arbitrary redistributions and social bitterness,” and “memories of social situations in which morale and a sense of cooperation were lost.”
That may be what makes the inflation surge such a tricky policy problem: It can be about something more profound than dollars in people’s pockets and the price of a gallon of gas.
David Gross, an executive at a New York-based advertising agency, convened the troops over Zoom this month to deliver a message he and his fellow partners were eager to share: It was time to think about coming back to the office.
Mr. Gross, 40, wasn’t sure how employees, many in their 20s and early 30s, would take it. The initial response — dead silence — wasn’t encouraging. Then one young man signaled he had a question. “Is the policy mandatory?” he wanted to know.
Yes, it is mandatory, for three days a week, he was told.
Thus began a tricky conversation at Anchor Worldwide, Mr. Gross’s firm, that is being replicated this summer at businesses big and small across the country. While workers of all ages have become accustomed to dialing in and skipping the wearying commute, younger ones have grown especially attached to the new way of doing business.
And in many cases, the decision to return pits older managers who view working in the office as the natural order of things against younger employees who’ve come to see operating remotely as completely normal in the 16 months since the pandemic hit. Some new hires have never gone into their employers’ workplace at all.
banking and finance, are taking a harder line and insisting workers young and old return. The chief executives of Wall Street giants like Morgan Stanley, Goldman Sachs and JPMorgan Chase have signaled they expect employees to go back to their cubicles and offices in the months ahead.
Other companies, most notably those in technology and media, are being more flexible. As much as Mr. Gross wants people back at his ad agency, he is worried about retaining young talent at a time when churn is increasing, so he has been making clear there is room for accommodation.
“We’re in a really progressive industry, and some companies have gone fully remote,” he explained. “You have to frame it in terms of flexibility.”
In a recent survey by the Conference Board, 55 percent of millennials, defined as people born between 1981 and 1996, questioned the wisdom of returning to the office. Among members of Generation X, born between 1965 and 1980, 45 percent had doubts about going back, while only 36 percent of baby boomers, born between 1946 and 1964, felt that way.
most concerned about their health and psychological well-being,” said Rebecca L. Ray, executive vice president for human capital at the Conference Board. “Companies would be well served to be as flexible as possible.”
Matthew Yeager, 33, quit his job as a web developer at an insurance company in May after it told him he needed to return to the office as vaccination rates in his city, Columbus, Ohio, were rising. He limited his job hunting to opportunities that offered fully remote work and, in June, started at a hiring and human resources company based in New York.
“It was tough because I really liked my job and the people I worked with, but I didn’t want to lose that flexibility of being able to work remotely,” Mr. Yeager said. “The office has all these distractions that are removed when you’re working from home.”
Mr. Yeager said he would also like the option to work remotely in any positions he considered in the future. “More companies should give the opportunity for people to work and be productive in the best way that they can,” he said.
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Even as the age split has managers looking for ways to persuade younger hires to venture back, there are other divides. Many parents and other caregivers are concerned about leaving home when school plans are still up in the air, a consideration that has disproportionately affected women during the pandemic.
At the same time, more than a few older workers welcome the flexibility of working from home after years in a cubicle, even as some in their 20s yearn for the camaraderie of the office or the dynamism of an urban setting.
I get to exercise in the morning, have breakfast with my kids, and coach little league in the evenings. Instead of sitting in an office building I get to wear shorts, walk our dog, and have lunch in my own kitchen.” Chad, Evanston, Ill.
V.A. issues vaccine mandate for health care workers: “I am a VA physician and strongly support this decision. Believe it or not, I know and work closely alongside several frontline healthcare workers who are not vaccinated for COVID-19, almost all of whom have chosen to avoid the vaccine as a result of misinformation and political rhetoric.” Katie, Portland.
As China boomed, it didn’t take climate change into account. Now it must.:“I think this article really highlights the fact that capitalism is, and always will be, completely incapable of addressing long term existential threats like climate change.” Shawn, N.C.
“With the leverage that employees have, and the proof that they can work from home, it’s hard to put the toothpaste back in the tube,” he said.
Fearful of losing one more junior employee in what has become a tight job market, Mr. Singer has allowed a young colleague to work from home one day a week with an understanding that they would revisit the issue in the future.
doctrinaire view that folks need to be in the office.”
Amanda Diaz, 28, feels relieved she doesn’t have to go back to the office, at least for now. She works for the health insurance company Humana in San Juan, P.R., but has been getting the job done in her home in Trujillo Alto, which is about a 40-minute drive from the office.
Humana offers its employees the option to work from the office or their home, and Ms. Diaz said she would continue to work remotely as long as she had the option.
“Think about all the time you spend getting ready and commuting to work,” she said. “Instead I’m using those two or so hours to prepare a healthy lunch, exercising or rest.”
Alexander Fleiss, 38, chief executive of the investment management firm Rebellion Research, said some employees had resisted going back into the office. He hopes peer pressure and the fear of missing out on a promotion for lack of face-to-face interactions entices people back.
“Those people might lose their jobs because of natural selection,” Mr. Fleiss said. He said he wouldn’t be surprised if workers began suing companies because they felt they had been laid off for refusing to go back to the office.
Mr. Fleiss also tries to persuade his staff members who are working on projects to come back by focusing on the benefits of face-to-face collaborations, but many employees would still rather stick to Zoom calls.
“If that’s what they want, that’s what they want,” he said. “You can’t force anyone to do anything these days. You can only urge.”