Surging prices: Key inflation measure hits a 39-year high

New York(CNN Business) Pandemic price hikes didn't let up in the last month of 2021: A key inflation gauge hit a fresh a 39-year high.

The US consumer price inflation index rose 7% over the past year before seasonal adjustments, the steepest climb in prices since June 1982, the Bureau of Labor Statistics reported Wednesday.

It was also a faster rate of increase than November's 6.8%, and higher than economists had predicted.

Stripping out food and energy costs, which tend to be more volatile even in non-pandemic times, inflation rose to 5.5% between December 2020 and December 2021 -- the biggest annual jump since February 1991. That was a much faster pace than in November, when core inflation stood at 4.9%.

Separately, the food price index climbed 6.3%, while grocery prices rose even more: 6.5% last year. The energy cost index rose 29.3% over the past year.

But even though prices went through the roof last year, they are still nowhere near the historic highs from the 1980s. Inflation peaked in the spring of 1980 at 14.8% without seasonal adjustments, 14.6% with adjustments.

For the month of December alone, prices rose 0.5%, adjusted for seasonal swings. It was slightly more than economists had forecast but a decrease from the 0.8% monthly increase in November.

What got more expensive?

Price trackers for housing as well as used cars and trucks were the biggest contributors to the December price hikes.

Food costs also went up -- rising 0.5% -- but at a slightly slower pace than in recent months. Prices rose in nearly all major grocery categories, with fruit and vegetable prices rising the most.

Energy costs declined by 0.4%, marking the first monthly decline since April 2021. But the decrease is unlikely to last into 2022.

"Unfortunately, energy prices have rebounded into January after a temporary Omicron-hit in December," said Action Economics chief economist Mike Englund.

What does this mean for inflation in the new year?

First things first, inflation won't just disappear in 2022.

Even though the monthly price increases might keep moderating, it will take some time for the 12-month data to reflect that.

Englund believes that this longer-run inflation data will continue to trend higher until at least February, data for which will be released in March.

"Nothing in this report changes our outlook for inflation," said Jefferies (JEF) chief economist Aneta Markowska in a note to clients. "We remain of the view that inflation - though still unquestionably very hot - is close to peaking. We expect headline inflation to remain at 7% in January and begin to decline thereafter."

For the Federal Reserve, which stepped on the stimulus brakes last fall and predicts multiple interest rate hikes this year, the hot inflation numbers are just adding to the urgency.

"We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing and transportation," Powell said in the remarks released ahead of his confirmation hearing on Tuesday.

Keeping prices level is one of the two mandates of the central bank (the other being maximum employment). Rolling back stimulus, raising rates and eventually unwinding its massive balance sheet are steps to reign in inflation. And Thursday's data didn't give the the Fed a reason to take a breather.

Kristalina Georgieva, managing director of the International Monetary Fund, believes inflation is one of the key themes of 2022. We have to "recognize that inflation is a serious issue, economic and social, in many countries," she told CNN's Richard Quest on Wednesday.

"Central banks like the Fed are right to take action. But they have to walk a thin path. They have to protect the economy while fighting inflation," she said.

--Matt Egan contributed to this report.