Inflation Continued to Run Hot and Consumer Spending Fell in December

Inflation came in strong and wage growth remained elevated at the end of 2021. At the same time, consumer spending fell in December as spiraling coronavirus caseloads kept many Americans at home and persistent supply chain bottlenecks disrupted holiday shopping.

Those indicators, released on Friday, underline that despite plummeting unemployment and a strong rebound in growth, the economy — like the country itself — has yet to break free of the pandemic’s grip. That is making for a confusing and contradictory moment headed into 2022.

Rising prices and an unflagging pandemic are slowing spending, denting consumer optimism and detracting from quickly climbing pay and unusually rapid overall growth. People are predicting worse financial outcomes for themselves and higher inflation as the virus lingers and uncertainty deepens, bad news for policymakers who are just beginning to try to tame price increases.

The Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, rose 5.8 percent in the year ending in December, up from 5.7 percent the prior month. Prices are climbing at the fastest pace since 1982.