The core CPI year-on-year rate increased from 4.9 percent in November to 5.5 percent in December, the highest since February 1991, according to Oxford Economics. The annual pace of headline inflation reached 7 percent, the fastest pace since June 1982.
The elevated and sticky rate of inflation has front-run the Fed’s original plans envisioned under the FAIT framework. The Fed now sees it as its top priority to ensure that inflation moderates back toward the long-run 2 percent inflation target in order to promote a long-lasting economic expansion that brings about maximum employment over time. Oxford Economics now sees the Fed raising rates in March and on course for four rate hikes in total in 2022. Based on the hawkish comments from Fed officials, balance sheet reduction (quantitative tightening) will likely start midyear.
The rise in core consumer inflation was broad-based, with significant gains in used cars and trucks (+3.5 percent), new vehicles (+1.0 percent) a