To the nameless economists who played down the risk of inflation, 2021 was a year to forget. This week’s data confirmed that U.S. consumer prices rose 7% last year while core prices rose by a slightly-less-eye-popping 5.5%. The Fed is shifting its tone.

The state of inflation

The patterns in last month’s CPI report were familiar: Durable goods (+1.2%) were outsized drivers of price increases. Within that category, used cars were the biggest outlier, rising 3.5%. Overall, services inflation remained relatively tame at 0.3%, but shelter inflation – which is notoriously difficult to account for given how many people own their own homes – has been running hotter than normal.

Inflation in 2021 owed much to the positive demand shock from multiple fiscal stimulus measures in the first half of the year and the ongoing shortage of semiconductor chips that go into products like cars. The highest months for inflation occurred in the second quarter of last year, but Q4 marked a return to inarguably elevated inflation that is capturing more than just hiccups in global supply chains.