The latest consumer price index (CPI) rose 7% over the past year, according to the Bureau of Labor Statistics (BLS), which publishes the report. That continues to be the fastest annual increase in the inflation rate in 40 years. The measure of so-called core inflation, which excludes food and energy costs that can be more volatile, rose by 5.5% over the past year, the fastest rate since 1991.

Breaking down the overall price increases by month, consumer prices rose 0.5% from November to December. That’s slightly faster than experts’ expectation for a 0.4% increase last month, but still at a slower monthly pace than the previous two months. 

While inflation remained elevated at the end of last year, experts believe it’s set to slow in 2022. “Some of the increase in inflation, particularly on a year-over-year basis, is due to comparisons with 2020, when prices were weak coming out of the pandemic,” says PNC chief economist Gus Faucher. Additionally, rising prices in several categories of goods and services, including autos, airfares, and energy, stem from the fact that supply has not caught up with demand as the U.S. reopened, Faucher says. He predicts inflation is likely to peak on a year-ago basis early this year. 

Increases in vehicle costs, as well as shelter—which includes rent and homeowners’ equivalent rent—contributed heavily toward the latest CPI spikes. Apparel prices were also on the rise in December, as were food costs, but less so than in recent months. Previously energy prices had been skyrocketing, but the monthly increases declined in December, thanks to falling oil prices. 

The cost of used cars and trucks surged 3.5% month over month, with annual increases topping ​​an incredible 37.3%. Inflation on new cars was slightly less, with prices rising 1% from November to December and 11.8% over the previous year. 

Although that’s down from the highs seen over the summer, the U.S. likely hasn’t experienced enough of a recovery in supply to push prices down significantly, writes Dean Baker, senior economist with the Center for Economic and Policy Research. “That probably will take another couple of months,” he says. 

Housing costs also saw another steady 0.4% month-over-month increase in December, jumping 4.1% over the past year. That’s in line with increases previously seen in November and October. Faucher predicts that the index for shelter will remain high and likely serve as a big contributor to inflation in this year.

In fact, housing is now contributing more to monthly core CPI inflation than it typically was in 2019, reflecting challenges in the housing market, according to the Council of Economic Advisers. 

The price of many household items, including apparel and furniture, saw jumps in December. Apparel rose 1.7% from November to December, its largest increase since January 2021. However, Baker points out that prices are now up 0.6% from pre-pandemic levels. “These are mostly imports, so [the] higher dollar should be putting downward pressure on prices,” he writes. 

The index for household furnishings and operations rose 1.1% in December as well, with prices for furniture, bedding, and housekeeping supplies contributing to the surge. 

"Inflation is still almost entirely driven by durable goods, not services," writes Jason Furman, an economist and professor at Harvard University’s John F. Kennedy School of Government. This should come down as supply chains "unsnarl," he says, but prices in the services sectors (which includes housing) are the big question.

While food prices rose 0.5% in December and 6.3% over the past 12 months, it was a slower pace than in previous months. Prices for groceries, for instance, increased just 0.4% in December after rising 0.8% in November. Meat prices, in particular, fell 0.9%, still up 14.8% year over year. 

While experts predict inflation will slow in 2022 as supply catches up to demand, prices for many other goods and services will be higher in 2022 than before the pandemic, due to higher labor costs and input prices, Faucher says.

The current inflation stems primarily from COVID-related disruptions in the global supply chain and unique characteristics of the pandemic economy, not from a generally overstimulated economy, writes Chad Stone, chief economist for the progressive think tank Center on Budget and Policy Priorities. "Keeping the economic expansion going and lowering inflation require controlling the virus," he adds.