Inflation leaped again in December to the fastest pace since 1982

• The Consumer Price Index surged 7% year-over-year in December, matching the average estimate.
• The pace marks the strongest inflation since 1982 and a slight pickup from November's 6.8% gain.

Inflation in December was the strongest in almost four decades. It just might be the peak of pandemic-era price growth.

The Consumer Price Index — a popular measure of US inflation — gained 7% year-over-year last month, the Bureau of Labor Statistics announced Wednesday. That compares to a median forecast of 7% growth from economists surveyed by Bloomberg. The pace reflects the strongest inflation since 1982 and marks a slight acceleration from the 6.8% year-over-year leap seen in November.

The gauge also rose 0.5% on a month-over-month basis, according to the report. That beat the median estimate of a 0.4% jump and showed a slowdown from the prior month's 0.8% increase. The weaker one-month print hints overall inflation is fading as the gap between supply and demand closes.

Core CPI, which strips out volatile food and energy prices, rose 0.6% through last month. That came in above the median 0.5% projection and showed a small pickup from November's 0.5% gain.

The increase was mostly fueled by used car and truck prices, which leaped by 3.5% in December alone. That's up from 2.5% growth in the previous two months and the biggest jump for the category since June. Prices for apparel and non-energy commodities followed with 1.7% and 1.2% increases, respectively.

Energy prices fell 0.4% through the month, shifting from the sizable month-over-month upticks seen throughout the summer and fall. The category powered much of the recent inflation surge, and a continued pullback could put a damper on overall price growth.

The report reveals inflation worsened slightly through the last month of 2021 as Omicron spread across the country and supply chains slowly healed. The last 12 months have seen inflation become the biggest issue clouding the US recovery as consumers finally returning to some normal activity crashed into the fastest price growth in decades. The latest data represents the new high for pandemic inflation and caps a year of already historic price growth.

The report also comes as the Federal Reserve shifts its focus to fighting the inflation surge. The central bank announced in December it would double the pace at which it shrinks its emergency asset purchases, teeing the program up to end in March. The faster pullback sets the stage for multiple interest rate hikes in 2022, and Fed Chair Jerome Powell said Tuesday he's willing to accelerate the rate-hike timeline if inflation doesn't fade as anticipated.

"If we have to raise interest rates more over time, then we will," Powell said. "To get a long expansion, we're going to need price stability. In a way, high inflation is a severe threat to the achievement of maximum employment and achieving the long expansion that can give us that."

Economists are holding out hope for an early 2022 cooldown

If forecasters are correct, the latest inflation data could be the worst people see before things get better. The month-over-month slowdown hints broad inflation will start to decline as higher prints are pushed out of the one-year window and replaced with lower readings. Wall Street generally sees inflation as having peaked in the fourth quarter of 2021, meaning the following months will start to see the year-over-year rate fall back to earth.

The Fed and the Biden administration hold similar outlooks. Powell reiterated during his Tuesday confirmation hearing that he expects inflation to soften by the middle of 2022. Separately, Treasury Secretary Janet Yellen has said she expects price growth to cool around the same time.

Even the average American is becoming more optimistic toward the inflation situation. Year-ahead inflation expectations were flat in December, according to the New York Fed's Survey of Consumer Expectations. That marks the first month without an increase since October 2020. The three-year expected inflation rate also held flat, signaling a broad acceptance that price growth won't be permanently elevated.

Key to solving the inflation problem is solving the world's supply chain mess. Shipping bottlenecks and goods shortages have plagued the US for months and led businesses to hike prices amid strong demand from shoppers. Powell said Tuesday that he expects "some help" with fighting inflation as supply chains heal over the coming months. With the Fed already reining in its pandemic-era aid, the stage is also set for demand to better match in 2022.