U.S. inflation hit close to a 40-year high in November with consumer prices rising 0.8 percent for the month and 6.8 percent compared to a year ago, buoyed by a booming economy, strong consumer demand and weak supply related to the coronavirus pandemic.

Prices started rising before the omicron variant emerged, presenting a new threat from the pandemic as it enters its third year. However, the sharp price increases are the result of a booming economy that has encountered supply and demand imbalances as the U.S. continues to recover from the pandemic, Wall Street Journal reported.

Here are three things to know about inflation and its 39-year high.

Fastest pace of inflation since 1982

November marked the sixth month in a row for inflation of 5 percent or higher. The 6.8-percent rise in the consumer price index in November represents the fastest pace of inflation since 1982, according to the U.S. Labor Department.

The inflation rate in 1981 was 10.32 percent and in 1982, inflation was 6.16 percent, according to a CPI inflation calculator. An economic downturn that lasted from July 1981 to November 1982 was triggered by tight monetary policy in an effort to fight mounting inflation, Federal Reserve History reported. Prior to the 2007-2009 recession, the 1981-1982 recession was the worst economic downturn in the U.S. since the Great Depression. Unemployment reached nearly 11 percent in late 1982, the highest since the World War II era, according to the Federal Reserve Bank of St. Louis.

Multiple sectors saw record-breaking price increases in November 2021. This included the prices for new vehicles (up 11.1 percent in November), fast-food restaurant prices (up 7.9 percent), prices for living room, kitchen and dining room furniture, and men’s apparel.

Also included among the highest-rising prices were gasoline (up 6.1 percent in November and  58.1 percent over the past year), used cars and trucks (up 2.5 percent month over month and up 31.4 percent over the past year), and shelter and food. Airline fares increased. By contrast, prices for motor vehicle insurance, recreation, and communication all declined in November.

Over the past year, overall energy prices rose 33.3 percent and food prices increased 6.1 percent.

The U.S. economy is booming

The U.S. economic growth is stronger than in “virtually any other nation,” President Joe Biden said on Dec. 10 in response to the Labor Department’s November 2021 consumer price index report. Americans each have about $100 more in their pockets than last year, even after accounting for price increases, Biden said. “But we have to get prices and costs down before consumers will feel confident in that recovery,” he added.

The economy is in great shape, said Allen Sinai, chief global economist and strategist at Decision Economics, Inc.

“We have tremendous spending by consumers. A lot of people are getting hired. Demand is huge,” Sinai told the Wall Street Journal. Even if the government pulls back on fiscal and monetary stimulus, “the economy should still be in super shape producing growth rates and earnings not seen in decades.”

Wages are up but after inflation, they’re down

With ongoing staff shortages, many Americans have received wage increases this year but many salaries aren’t enough to keep up with inflation. Households have to dig deeper to afford the basics because their purchasing power is decreasing. Year-over-year wage growth in the U.S. was up an average of 2.7 percent in the third quarter, according to the PayScale Wage Index. But with inflation factored in, real wages are actually down 0.4 percent. 

“Inflation is outpacing increases in household income and weighing heavily on consumer confidence, which is at a decade low. It is only a matter of time before it impacts consumer spending in a material way,” said Greg McBride, chief financial analyst at Bankrate, in a Fortune report.

Black families are among those hit hardest by inflation, according to a Bank of America research report. Breaking down demographics by race, geography, and income, the bank found that the “inflation shock” of 2021 has disproportionately affected the marginalized. African American households have been spending more of their post-tax income on goods and services. 

Those with less income and wealth are less likely to have savings to buffer the current inflation shock. Therefore, the hit to their spending power is greater.  The “inflation shock” of 2021 has disproportionately affected marginalized groups, the report stated. Those with less wealth and income are less likely to have savings to buffer the inflation shock, exacerbating the hit to their spending power. 

Lower-income families are also more “exposed” to products with the most inflation, including energy, food, cars, household furnishings and supplies, BofA researchers wrote.

African American, Hispanic, and Latino households spent 7.1 percent of their post-tax income on energy, compared to 5.4 percent spent by other demographics. These same households spent 12.5 percent of their income on food, compared to 11.1 percent for everyone else. Overall, the spending power shock from higher inflation categories was 4 percent for African American, Hispanic, and Latino groups compared to 2.9 percent for everyone else. 

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