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Rent, electricity and grocery prices continue to increase faster than paychecks

ARI SHAPIRO, HOST:

Americans are paying more for rent, electricity and for groceries. At the Bestway Supermarket outside Washington, Sarah Johnson is feeling the pain of rising food prices.

SARAH JOHNSON: It's through the roof. It's too much. There's some things you just can't buy anymore, especially when your pay is not going up to match those prices.

SHAPIRO: Today, the federal government confirmed that sticker shock, saying the annual inflation rate last month hit 7.5%. And Sarah Johnson is right. Prices on average are climbing faster than paychecks, chipping away at people's buying power.

NPR's Scott Horsley joins us now. And Scott, how bad are these numbers?

SCOTT HORSLEY, BYLINE: Ari, they're pretty bad. People are paying more for just about everything, and not just a little bit more. Annual inflation in January was the highest since 1982. So if you're under 40, you've never seen price hikes like this before.

Rent in January was up almost 4% from a year ago, groceries up almost 7.5%. Electricity prices are more than 10% higher than they were this time last year. And as economist Sarah House of Wells Fargo notes, those are all basic necessities that really hit people where they live.

SARAH HOUSE: They have to pay for their rent. They have to go to the grocery store. And so what we're seeing is this inflation environment in many ways is continuing to bite even worse than when we saw bigger monthly gains back in the spring when it was used cars and some increase in recreation. These are purchases that consumers can't avoid.

HORSLEY: There's just an awful lot of consumer demand right now, and there's not enough supply to keep up. That's pushing prices higher. And as inflation spreads, it looks less like something that's going to come down automatically when the pandemic eases and more like a stubborn problem that's going to take work to address.

SHAPIRO: And what's the Biden administration doing to address these high prices?

HORSLEY: The White House had at least hoped to see some slowdown in the monthly price increase in January, but that didn't happen. Prices rose just as much from December to January as they had the month before.

The White House is touting administration efforts to untangle supply chains and boost competition, but the president has limited tools here. At an event in Virginia today, President Biden mainly just tried to show that he understands what a hardship these rising prices are.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT JOE BIDEN: Inflation is up. It's up. And coming from a family when the price of gas went up, you felt it in the household, you knew it was like, it matters.

HORSLEY: Now, gasoline prices actually came down just a little bit in January, but they're still up about 40% over the last year. Ultimately, it's the job of the Federal Reserve to fight inflation, and we could see action from the central bank as early as next month.

SHAPIRO: How is today's report going to affect the Fed's calculations?

HORSLEY: It's just going to add to the sense of urgency. You know, the Fed had already telegraphed that it is prepared to start raising interest rates as early as March to get control over prices. And economist House suspects the Fed may act more aggressively after today's higher than expected inflation measure.

HOUSE: The heat remains turned up on inflation and therefore the Fed to raise interest rates, so we're expecting them to raise rates in March. And really, it's coming down to a question of how much.

HORSLEY: Just a couple months ago, most Fed policymakers thought they would need to raise interest rates about three times this year by a quarter percentage point each time. Now, a lot of forecasters think we're going to see more and possibly larger rate hikes from the Fed because that's what it could take to bring inflation to heel. Now, that will raise the cost of home loans and car loans and other consumer credit.

We should keep in perspective though, interest rates have been close to zero throughout the pandemic. So even if the Fed does raise rates a lot, they'll still be pretty low by historical standards.

SHAPIRO: How's the stock market taking all of this?

HORSLEY: You know, the market was not too keen on this. Investors don't like inflation. It's not great for business. And they especially don't like rising interest rates.

So the Dow Jones Industrial Average fell more than 500 points today. The Nasdaq was down more than 2%. The S&P 500 index was down nearly 2%. So we have this situation where stock prices are falling in a world where just about everything else is getting even more expensive.

SHAPIRO: Reporting there from NPR's Scott Horsley. Thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.