Evelyn Reynolds

Count former U.S. Treasurer Rosie Rios among the experts who sees brighter days ahead for the U.S. economy. If she’s right, it could mean good news for businesses and shoppers.
“I’m much more optimistic about 2022 than I was about 2021,” Rios, who served in that role as part of the Obama Administration from 2009 to 2016, tells CNBC Make It.

A host of issues stemming from the pandemic — including labor shortages, supply chain disruptions and rising inflation — hampered economic growth in 2021, and Rios admits that continued uncertainty around Covid-19, and variants like delta and omicron, could always throw the country’s economy off course yet again. 
“The pandemic is still, obviously, out there. And who knows what other variants are going to come our way,” Rios continues. “But optimism, I think, across the board, hopefully, is going to come true.”
Among the positive signs Rios points to is the expected surge in consumer spending for the current holiday season, even with shoppers and businesses concerned about the effects of rising inflation and supply chain issues. But if holiday spending reaches the record levels that have been forecasted by the National Retail Federation, that would help bolster the economy heading into 2022.

Meanwhile, like everyone else, Rios has her eye on inflation, which increased in November at its fastest pace in nearly 40 years and has meant higher prices for consumers. On Wednesday, the Federal Reserve released a forecast signaling plans to tackle inflation with three interest rate hikes in 2022. However, Rios also points out that, despite its drawbacks, inflation isn’t necessarily a bad sign for the economy.
“Inflation is also a sign that the labor market is tight wages are good,” she says. It is true that average hourly wages in the U.S. have increased this year, though inflation has increased faster, which still makes it hard for workers to keep up with rising prices.

Rios says “there’s definitely a balance and a rebalance that’s going to have to happen moving forward” when it comes to controlling inflation but holding onto improved wages that increase consumer spending power in 2022. There’s hope that the Fed’s planned moves can help keep inflation in check next year.
In terms of the overall economy, she says, “the fundamentals in general are looking good for 2022.”
She’s not the only one feeling optimistic. Even with its inflation battle looming, the Fed on Wednesday also raised its projections for U.S. gross domestic product growth in 2022, from 3.8% to 4%. And major financial institutions like JPMorgan and Goldman Sachs expect the stock market to continue rallying well into 2022.
More workers are expected to return to the workforce in 2022 as consumer spending continues to tick upward, which would help address the ongoing labor shortage. That’s good news for business owners, many of whom plan to hire more workers in 2022 — a factor of increased optimism, especially among small business owners, for the year ahead.
Of course, much of that optimism also depends on what happens next with the pandemic, especially as the Covid-19 omicron variant spreads rapidly. Still, medical experts tend to be hopeful that the coming year will finally bring the pandemic to something resembling an ending.
“I think there’s still a lot of variables to consider in thinking about 2022 that we haven’t even encountered yet,” Rios says.
Still, the uncertainty that remains is not stopping her from feeling confident about what’s to come, she says: “I’m actually looking forward to 2022 [and] putting 2021 behind us.”
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Weekly jobless claims for the period ended Dec. 11 totaled 206,000, above the estimate for 195,000.
The four-week moving average declined to its lowest level since Nov. 15, 1969.
Continuing claims also fell to a fresh pandemic-era low.

Jobless claims were higher than expected last week after previously hitting their lowest level since 1969, the Labor Department reported Thursday.
Initial filings for unemployment insurance for the week ended Dec. 11 totaled 206,000, above the 195,000 Dow Jones estimate and a gain of 18,000 from the previous week’s upwardly revised 188,000.

Though the weekly claims total rose, the four-week moving average, which levels out volatility in the numbers, totaled 203,750, the lowest level since Nov. 15, 1969, according to government figures.
Both numbers are much more in keeping with the pre-pandemic environment rather than the outsized numbers shown since layoffs exploded in March 2020, the early days of the Covid-19 outbreak. Weekly claims peaked at 6.15 million in April 2020 and remained above 300,000 before finally dipping below that number in early October 2021.
Continuing claims, data for which runs a week behind the headline number, declined 154,000 to 1.845 million, the lowest since March 14, 2020.

The data comes a day after the Federal Reserve said it will intensify the rate at which it is withdrawing economic support.
The central bank said it will step up the tapering of its asset purchases where it will be buying $60 billion a month in Treasurys and mortgage-backed securities, half the pace prior to November. Along with the taper, Fed officials said they expect to start raising interest rates in 2022, with three quarter-percentage point hikes likely.

In making the move, the rate-setting Federal Open Committee noted that “job gains have been solid in recent months, and the unemployment rate has declined substantially.”
A separate report showed that housing starts in November rose 11.8% from the previous month to a seasonally adjusted 1.68 million, while building permits climbed 3.6% to 1.71 million. Both numbers were well above respective estimates of 1.56 million and 1.66 million.

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SALAR DE UYUNI, Bolivia — The mission was quixotic for a small Texas energy start-up: Beat out Chinese and Russian industrial giants in unlocking mineral riches that could one day power tens of millions of electric vehicles.A team traveled from Austin to Bolivia in late August to meet with local and national leaders at a government lithium complex and convince them that the company, EnergyX, had a technology that would fulfill Bolivia’s potential to be a global green-energy power. On arriving, they found that the conference they had planned to attend was canceled and that security guards blocked the location.Still, the real attraction was in plain sight: a giant chalky sea of brine high in the Andes called the Salar de Uyuni, which is rich in lithium, among several minerals with growing value worldwide because they are needed in batteries used in electric cars and on the power grid.Surrounded by rusty equipment, empty production ponds and pumps uncoupled from pipes, it seemed a forlorn spot. But to Teague Egan, EnergyX’s chief executive, it had nothing but promise.“This is the new Saudi Arabia,” he promised.The Indigenous Quechua people revere the Salar de Uyuni, 4,000 square miles of salt flats that their forebears believed were the mixture of a goddess’s breast milk and the salty tears of her baby. For Mr. Egan, the site is “pure white beauty as far as the eye can see.”With a quarter of the world’s known lithium, this nation of 12 million people potentially finds itself among the newly anointed winners in the global hunt for the raw materials needed to move the world away from oil, natural gas and coal in the fight against climate change.Eight foreign companies have been competing in recent months to establish pilot lithium projects here, including four from China and one from Russia, countries that have had friendlier relations with Bolivia’s government than the United States has.Just as wildcatters have long sought riches prospecting for oil, the clean energy revolution is spawning a wave of gritty entrepreneurs who hope to ride a new boom, vaulting themselves into the intersection of geopolitics and climate change. Some are familiar names like Elon Musk at Tesla, while Mr. Egan and others are strivers looking for their first break in mineral-rich places like Bolivia, the Democratic Republic of Congo and the South Pacific.Mr. Egan is among the determined underdogs. His company, with 30 employees, is one of two from the United States among the eight contenders to develop Bolivia’s lithium reserves.Lithium is a basic component of lithium-ion batteries, enabling the flow of electrical currents. Because of the metal’s light weight, long life, large storage capacity and easy recharging, demand is expected to grow exponentially over the next decade to power an expanding fleet of vehicles produced by Tesla, Ford Motor, General Motors and other carmakers and spread power grid battery storage for renewable energy. This year alone, prices for lithium compounds are up over 200 percent on several global markets.Mr. Egan, 33, had never worked in the energy industry before starting EnergyX in 2018 to pursue lithium projects. With his hair slicked back, frequently unshaven and wearing his baseball cap backward, he projects youthful exuberance and self-confidence.He established a book club at his company and assigned a biography of Thomas Edison as the first offering to send a message to his colleagues: “You can try 100 times and give up. Edison tried 17,000 plants to produce domestic rubber.”Despite the bravado, he would appear to be an unlikely character to drive Bolivia’s energy future. He has never worked in Latin America and speaks virtually no Spanish.But for Mr. Egan, the only thing that is really important is his belief that his technology to coax the lithium out of the Andean brine is the best to finally make Bolivia an energy power.“In Bolivia they are so sensitive about the politics,” he said. “I just don’t understand why they should not do what is in the best interest of the country. I can only control what I can control.”.css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-1kpebx{margin:0 auto;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-1kpebx{font-size:1.25rem;line-height:1.4375rem;}}.css-1gtxqqv{margin-bottom:0;}.css-1g3vlj0{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-1g3vlj0{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-1g3vlj0 strong{font-weight:600;}.css-1g3vlj0 em{font-style:italic;}.css-1g3vlj0{margin-bottom:0;margin-top:0.25rem;}.css-19zsuqr{display:block;margin-bottom:0.9375rem;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}‘The Lithium Is for Bolivians’There is much that Mr. Egan cannot control in this country long riddled with coups and racial, ideological and regional divisions.Bolivia’s governing party, the Movement for Socialism, is led by former President Evo Morales, who tried to draw the country closer to China before protests and the military forced him from power two years ago.The current president, Luis Arce, who was Mr. Morales’s economy minister, heads a coalition of social democrats and more doctrinaire leftists. He faces challenges from local movements that object to the socialist government and are wary of foreign interests, seeing them as exploiters of Bolivia’s mineral wealth going back to the 17th century.Only two years ago, a lithium deal between Mr. Morales and a German company led to protests that eventually spread around the country. Mr. Morales was forced to scrap a contract only a week before he fled the country.Marco Pumari, a local politician who led the protests, demanded a tripling of royalties for Potosí Province and local involvement in ownership of lithium enterprises. He said that his demands had not changed, and that his opposition to the ruling socialists remained steadfast.“As soon as they publicly choose the foreign companies, the province will mobilize,” he said in an interview. “The government is playing with fire.”In August, about 80 protesters took over two roads, blocking Mr. Arce from visiting government lithium facilities and demanding that he fire the new head of the state-owned lithium company and give local residents greater say in decisions about lithium production. The protest forced the cancellation of the conference that Mr. Egan and his EnergyX team were scheduled to attend.“We need asphalt roads and textile factories,” said Rosa Belen Julaca, a Potosí quinoa farmer who joined the protest even though she generally supports the government. “If they don’t listen to us, we’ll keep blocking the roads.”Government officials soon visited to calm tensions.Women poured colorful confetti on the heads of officials and draped their necks in wreaths of flowers. The visitors included Franklin Molina, the energy minister, and the head of the state lithium company, whom the protesters had wanted ousted.At a festive community meeting punctuated by Indigenous music, dance and poetry, they promised jobs and social programs from a lithium industry that would someday include manufacturing batteries and even electric cars.“The lithium is for Bolivians,” Mr. Molina declared to cheers.Energy experts say a major increase in Bolivian lithium production would keep battery prices down, helping President Biden achieve his goal of electrifying half of new cars sold in the United States in 2030, up from 4 percent today.“The amount of lithium we need in any of our climate goals is incredible,” said Anna Shpitsberg, the U.S. deputy assistant secretary of state for energy transformation. “Everyone is trying to build up their supply chains and think about how to be strategic.”But Washington has little sway in Bolivia, whose leaders have long disagreed with the American approach to drug policy and Venezuela. That may explain why some energy executives do not think Bolivia is worth the risk.“You’ve had 30 years’ worth of projects in Bolivia with almost nothing to show,” said Robert Mintak, chief executive of Standard Lithium, a publicly traded mining company based in Vancouver, British Columbia, referring to lithium development efforts dating back to 1990. “You have a landlocked country with no infrastructure, no work force, political risk, no intellectual property protection. So as a developer, I would choose someplace else that is safer.”Mr. Egan sees the odds differently.‘I Need to Be Involved’That Mr. Egan has gotten this far is a marvel. He learned about Bolivian lithium only by chance when he and a friend crisscrossed South America as tourists in 2018.When they got to the salt flats, a guide explained that they were standing on the world’s largest lithium reserve. “I thought, ‘I don’t know how I’m going to do this, but I need to be involved,’” Mr. Egan said.He had tried his hand as a sports and music agent and ran a small investment fund at the time. He had invested in Tesla in 2013 at $9 a share; it now trades around $975. (He would not reveal how many shares he had bought and how many he still had.)But he felt that he wasn’t achieving much. Before Mr. Egan traveled to South America, his father, Michael, the founder of Alamo Rent A Car, advised him to make two lists — of his five biggest passions and of the five industries he thought would grow fastest in the coming decades. Renewable energy was on both lists.Mr. Egan read up on lithium. He settled on filtering membranes as the vital missing link to make lithium evaporation ponds more productive and profitable. Then he came across a 2018 paper written by Benny Freeman, a chemical engineering professor at the University of Texas at Austin, and some scientists working in Australia about a new type of membrane with atom-size pores that could be used to separate and purify lithium salts from rocks and brines.He traveled to Austin and Australia, and Mr. Egan and Dr. Freeman hit it off.Teague Egan at the Salar de Uyuni, which he called “the new Saudi Arabia.”The two made an unlikely pair. Dr. Freeman, 60, was born into poverty in rural North Carolina and was the first person in his family to graduate from high school. Mr. Egan grew up wealthy in southern Florida. Dr. Freeman became passionate about chemistry handling pesticides on his family’s apple farm. Mr. Egan said he had learned business skills from his father at the dinner table.Mr. Egan returned again and again to Bolivia, but he made little progress selling officials on his technology. “All these people, their hands are just tied behind their backs,” he said, since they are scared to offend leaders at the top.A big break came in April 2020 when Diego von Vacano, a Bolivian political science professor at Texas A&M University — and an informal adviser to Mr. Arce, then a leading presidential candidate — contacted Dr. Freeman for advice on lithium extraction. Dr. Freeman connected Dr. von Vacano and Mr. Egan, and the Texas A&M professor became Mr. Egan’s vital bridge to Bolivia.After Mr. Arce won, Mr. Egan attended the inauguration. With Dr. von Vacano’s help, Mr. Egan made critical connections in the new administration.He was not able, though, to secure a meeting with the new president. During one trip, he tracked down Mr. Arce when they were both in Santa Cruz. Accompanied by Dr. von Vacano, Mr. Egan finally got a glimpse of the president eating in the canvas-covered wooden stalls of a fish market.But as he approached the leader, Dr. von Vacano stopped him. Mr. Arce was eating with a congressman antagonistic toward the United States. Avoiding a scene, Mr. Egan walked away. He returned home, but he was not done trying.A Visit and a BlessingMr. Egan discussing strategy with his team after learning that the conference they flew to Bolivia to attend had been canceled.In August, after the conference was canceled, Mr. Egan and his team flew to La Paz, the seat of government, and kept knocking on doors, hoping to capitalize on the contacts that Mr. Egan had made among top Energy Ministry officials.As always, there were hurdles.When they met with Carlos Humberto Ramos, the newly appointed head of the state lithium company, to persuade him of the advantages of their approach, they found that he had little understanding of EnergyX’s membrane technology.Mr. Egan’s team returned to Mr. Ramos the next day, and after explaining its technology to his top technicians, the team was told that it could visit the lithium complex and that an initial agreement approving EnergyX’s project was virtually a done deal.That night, EnergyX’s strongest ally in the government — Álvaro Arnez, a deputy energy minister overseeing lithium development — gave the arrangement his blessing. He joined Mr. Egan’s team for a celebration at an elegant La Paz restaurant over plates of dried Amazonian catfish and roast pork with pear kimchi.The next morning, Mr. Egan and his team flew back to the salt flats.They inspected several shimmering man-made ponds, which hold brine for evaporation — a method of lithium extraction that has been hampered by heavy seasonal rains.Even when dry, the lithium must be separated chemically from other minerals, a process that wastes much of the desired lithium.Mr. Egan told technicians that his technology could greatly increase and speed up production.There were disagreements over where to put the proposed pilot project, and when Mr. Egan suggested ways to move forward toward commercialization, the technicians told him to wait until initial test results were in. But he was content that he toured the facilities before other companies.In an interview, Mr. Molina, the energy minister, said Chinese and Russian diplomats were lobbying on behalf of their own companies, but he insisted that “there is room for Americans, Russians, Chinese, Japanese, whoever wants to invest as long as they respect our sovereignty.”China has advantages. It already controls substantial lithium assets in South America, and its businesses have made roughly $4.5 billion in lithium investments over the last three years in South America and Mexico. Chinese banks give low-interest loans to Chinese mining and construction companies operating abroad to advance President Xi Jinping’s plans to dominate industries of the future.As for Russia, President Vladimir V. Putin has spoken by phone with Mr. Arce at least twice about lithium and other matters, Russian officials said.Mr. Egan said he was getting virtually no help from the U.S. government. And American officials say their best hope is to gently press for a level playing field.The long game has paid off for Mr. Egan, at least so far. He signed an agreement to start the pilot, and in October he shipped a container to Bolivia outfitted with pumps, valves, tanks and membranes to separate lithium from brine. If the pilot shows promising results, he may be able to proceed with a commercial project.Of the 20 companies in competition at the start of the year, the government has named eight to carry out pilots, including one other small American company, Lilac Solutions of California.All the contenders — the eighth is from Argentina — will be competing for Bolivian government attention and resources like power hookups and skilled local technicians in the months ahead before any can be approved to move toward commercial operations.“We still need to do a demonstration and scale it up,” Mr. Egan acknowledged. “We still need to go commercial. I mean, this is just Day 1.” More

With the economy healing, but price gains pinching consumers, officials are dialing back bond purchases and getting in position to raise interest rates (three are possible next year).Federal Reserve policymakers moved into inflation-fighting mode on Wednesday, saying they would cut back more quickly on their pandemic-era stimulus at a moment of rising prices and strong economic growth, capping a challenging year with a policy shift that could usher in higher interest rates in 2022.The central bank’s policy statement set up a more rapid end to the monthly bond-buying program that the Fed has been using throughout the pandemic to keep money chugging through markets and to bolster growth. A fresh set of economic projections released on Wednesday showed that officials expect to raise interest rates, which are now set near-zero, three times next year.“Economic developments and changes in the outlook warrant this evolution,” Jerome H. Powell, the Fed chair, said of the decision to pull back on bond purchases more quickly.By tapering off its bond buying faster, the Fed is doing less to stimulate the economy with each passing month, and putting the program on track to end completely in March.That would place Fed policymakers in a position to raise interest rates — their more traditional and more powerful tool — sooner. The Fed has made clear it wants to end its bond-buying program before it raises rates, which would cool off demand by making it more expensive to borrow for a home, a car or expanding a business. That would in turn weigh on growth and, eventually, price gains. The Fed’s new economic projections suggested rates, which have been at rock-bottom since March 2020, might rise to 2.1 percent by the end of 2024. More

Applications to refinance a home loan decreased 6% for the week and were 41% lower than the same week one year ago
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.30%.
Applications for a mortgage to purchase a home increased just 1% week to week and were 9% lower than the same week one year ago.

A brief surge in mortgage refinance demand fizzled fast, after interest rates resumed their climb along with the stock market. The initial scare from the Covid omicron variant caused rates to drop for about four days, sending borrowers rushing to their lenders, but then rates moved sharply higher again, and then see-sawed a bit last week.
As a result of the sharp swings, for the week the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.30%, with points staying unchanged at 0.39 (including the origination fee) for loans with a 20% down payment.

Applications to refinance a home loan decreased 6% for the week and were 41% lower than the same week one year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. Last year at this time rates were about 45 basis points lower.

A sign advertising home loan rates for purchase or refinancing at a Bank of America in New York.
Scott Mlyn | CNBC

“Fewer homeowners have a strong incentive to refinance at current rates,” said Joel Kan, an MBA economist.
About one-quarter of all borrowers have rates lower than 3% with more between 3% and 3.5%, according to Black Knight, a mortgage data and analytics firm. In general, borrowers would need to shave about 50 basis points off their current rate to make a refinance worth the cost.
Applications for a mortgage to purchase a home increased just 1% week to week and were 9% lower than the same week one year ago. While housing demand is strong, supply is weak and prices are continuing to rise at a fast pace. The trajectory of higher mortgage rates ahead is not helping homebuyers, especially first-timers who have very little extra room in their budgets.
Mortgage rates held steady to start this week, but all bets are off Wednesday afternoon, when the Federal Reserve makes its latest announcement on monetary policy. While mortgage rates don’t follow the fed funds rate, they are heavily influenced by the Fed’s purchases of mortgage-backed bonds. That support since the start of the pandemic caused mortgage rates to hit more than a dozen record lows last year. That is about to end.
“The Fed will most likely announce a faster wind-down of its bond buying programs. The targeted end date for bond buying will tacitly suggest the time frame in which the Fed is thinking about hiking rates for the first time since cutting them to zero at the start of the pandemic,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.

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What is inflation, why is it up and whom does it hurt? A run through common questions about the ongoing price burst.Inflation has become central to the American zeitgeist in 2021 in a way that it hadn’t been for decades. Google searches are up. Supply chain issues feature into popular Instagram posts. The satire website The Onion warned in a recent headline that “higher prices may force Americans to eat reasonable portions on Thanksgiving.”Even as inflation hits its highest level since 1982 and inserts itself as a topic of popular discussion, trying to understand it can be a mind-bending task. Some people who have studied markets and the economy for years often do not know the ins and outs of how inflation is calculated. Its aftereffects on society — from who wins and who loses to whether it is good or bad news — are nuanced.Here’s a guide to help explain what inflation is, including how it is measured and what it means for your economic security and savings.What is inflation?Inflation is a loss of purchasing power over time: It means your dollar will not go as far tomorrow as it did today.Inflation is typically expressed as the annual change in prices for a basket of goods and services. In the United States, there are two main inflation gauges.One, the Consumer Price Index or C.P.I., measures the cost of things urban consumers buy out of pocket. The other, the Personal Consumption Expenditures index, or P.C.E., is released at more of a lag and measures things people consume, including things they do not pay for directly — notably health care, which insurance and government benefits help to cover. The two indexes are also built slightly differently.The Federal Reserve, America’s central bank and the institution in charge of keeping prices from increasing too rapidly, targets 2 percent annual increases in the P.C.E. index on average over time. A little bit of consumer price inflation is generally viewed as desirable, in part because it gives companies room to adjust to a changing economy — one where labor and commodities might cost more — without being forced out of business.What causes inflation?In the short term, high inflation can be the result of a hot economy — one in which people have a lot of surplus cash or are accessing a lot of credit and want to spend. If consumers are buying goods and services eagerly enough, businesses may need to raise prices because they lack adequate supply. Or companies may choose to charge more because they realize they can raise prices and improve their profits without losing customers.But inflation can — and often does — rise and fall based on developments that have little to do with economic conditions. Limited oil production can make gas expensive. Supply chain problems can keep goods in short supply, pushing up prices.The inflationary burst America has experienced this year has been driven partly by quirks and partly by demand.What to Know About Inflation in the U.S.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.Who’s to Blame for Rising Prices?: Here are the most obvious candidates — and where the evidence looks strongest.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.On the quirk side, the coronavirus has caused factories to shut down and has clogged shipping routes, helping to limit the supply of cars and couches and pushing prices higher. Airfares and rates for hotel rooms have rebounded after dropping in the depths of the pandemic. Gas prices have also contributed to heady gains recently.But it is also the case that consumers, who collectively built up big savings thanks to months in lockdown and repeated government stimulus checks, are spending robustly and their demand is driving part of inflation. They are continuing to buy even as costs for exercise equipment or outdoor furniture rise, and they are shouldering increases in rent and home prices. The indefatigable shopping is helping to keep price increases brisk.Where is inflation headed and should I be worried?Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly: The C.P.I. measure rose by 6.8 percent in the year through November, the fastest pace since 1982.There are plenty of reasons to believe that the price burst will fade. Much of the increase this year owes to shortages of goods — from bicycles to cars and beds — that are likely to eventually ease as companies figure out how to produce and transport what people want to buy in a pandemic-altered economy. Many households also have built up savings, in part because of repeated stimulus payments, but they eventually could exhaust those.Plus, before the pandemic, aging demographics and high inequality in income and wealth had combined to drag inflation steadily lower for years as people preferred to save money instead of spending it, and those basic economic building blocks haven’t changed.But there are concerning signs that inflation is becoming stickier, meaning that it might last rather than fading with time. Rents have picked up sharply as home prices have risen and would-be buyers have found themselves locked out of ownership. Consumers are slowly starting to anticipate higher prices, though long-term inflation expectations have yet to jump drastically higher.In the longer term, the (sometimes contested) theory goes, high inflation can become entrenched if workers begin to expect it and can successfully negotiate wage increases to cover their climbing costs. Companies, facing higher labor bills, may manage to pass the costs onto consumers — and voilà, you have a situation where pay and prices push one another steadily upward.Is inflation bad?Whether inflation is “bad” depends on the circumstances.Most everyone agrees that super fast price increases — often called hyperinflation — spell trouble. They destabilize political systems, turn middle-class workers into paupers overnight, and make it impossible for businesses to plan. Weimar Germany, where hyperinflation helped to usher Adolf Hitler into power, is often cited as a case in point.Moderate price gains, even ones a bit above the Fed’s official goal, are a topic of more-serious debate. Slightly higher inflation can be good for people who owe money at fixed interest rates. If I sell coconuts for $1 and owe my bank $200 today, but next year I am suddenly able to charge $1.05 for my coconuts, my debt becomes easier for me to pay back: Now I only have to sell a little bit over 190 coconuts plus interest.But inflation can be tough for lenders. The bank to whom I owe my $200 is obviously not happy to get 190 coconuts worth of money instead of 200 coconuts worth. While politicians and the public rarely cry for bankers, the same is true for people with savings that bear low interest: Their holdings will not go as far. Inflation can be especially tough for people on fixed incomes, like students and many retirees.For workers taking home paychecks, whether inflation is a good or bad thing hinges on what happens with wages. If a worker’s pay goes up faster than prices increase, they can still find themselves better off in a high-inflation environment.Wages are growing quickly right now, especially for lower earners, but some measures suggest the growth is not keeping pace with inflation as it picks up steeply. Still, many households are also receiving transfers from the government — including an expanded Child Tax Credit — which could keep some families’ financial situations from deteriorating.How does inflation affect the poor?High or unpredictable inflation that isn’t outmatched by wage gains can be especially hard to shoulder for poor people, simply because they have less wiggle room.Poor households spend a bigger chunk of their budgets on necessities — food, housing and especially gas, which is often a contributor to bouts of high inflation — and less on discretionary expenditures. If rich households face high inflation and their wages do not keep up, they may have to cut back on vacations or dining out. A poor family may be forced to cut back on essentials, like food.“For lower income households, price increases eat up more of their budget,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, pointing out that some research suggests that poor people may even end up paying comparatively more for the same products. That may be partly because they lack the free cash to take advantage of temporary discounts.Around the world, poor people historically have reported greater concern around inflation, and that is also the case in the United States in the current episode.How does inflation affect the stock market?Really high inflation typically spells trouble for stocks, said Aswath Damodaran, who teaches corporate finance and valuation at New York University’s Stern School of Business. Financial assets in general have historically fared badly during inflation booms, Mr. Damodaran said, while real assets like houses have better held their value.The reason is simple.“You need to make higher returns to break even,” he explained. While it might have been attractive to invest money for a 3 percent annual payback before an inflationary burst, once inflation has taken off to 4 percent, your investment would actually be declining in terms of real-world purchasing power.Plus, inflation can be tough on the underlying business. Companies that lack pricing power — meaning that they cannot easily pass costs on to customers — suffer the worst, because they are forced to absorb input cost increases by taking a hit to their profit margin.High inflation can also spur the Federal Reserve to increase interest rates as it tries to cool off the economy and slow demand. If the central bank does so drastically, it could even plunge the economy into a recession, which would also be bad for stocks — along with everyone else.“The worse inflation is, the more severe the economic shutdown has to be to break the back of inflation,” Mr. Damodaran said. More

Retail sales rose for the fourth straight month in November, as consumers in the United States continued to spend even as they faced fast rising prices and an upswing in coronavirus infections.The 0.3 percent increase in sales last month reported by the Commerce Department was a slowdown from the month before — something that analysts said likely reflected a shift in the start of the holiday shopping season to October. Sales growth in October was revised slightly higher on Wednesday to 1.8 percent.Consumers, motivated by news of product shortages and fast rising prices, began their holiday shopping well before the Thanksgiving holiday, which is seen as the traditional start of the holiday shopping season.“We saw consumers thinking of inflation and supply chains being chocked, so the ultimate pantry loading happened in October,” Kathy Gramling, a consumer industry markets consultant for EY.As overall sales rose, spending — the key drivers of U.S. economic activity — at grocery stores and liquor stores, gas stations, clothing retailers and home improvement stores increased. Sales declined in several categories however: Spending at electronics and appliances stores fell 4.6 percent last month, while sales at car dealers and general merchandise stores, such as department stores, were down as well. Health and personal care stores, such as pharmacies, also saw a decrease of 0.6 percent.Ms. Gramling said retailers were likely to face logistical issues in January, when consumers come back to stores with returns from the holiday season.The latest measure of sales — the key driver of economic activity in the United States — comes as consumers are grappling with high inflation and a predicted surge in coronavirus infections. The sales data for November does not reflect how shoppers might have reacted to the emergence of the Omicron variant, which started to make headlines during the Thanksgiving weekend.But for now, economists expect that sales will continue to rise in December.A reading on consumer sentiment, measured by a University of Michigan survey on how Americans view the general state of the economy, increased in December after falling to its lowest level in a decade in early November. Those surveyed pointed to inflation as the most serious problem the country faces, according to preliminary results published on Friday.Also on Friday, the Labor Department reported that consumer prices had risen at their fastest pace in nearly 40 years. The Consumer Price Index was up 6.8 percent last month compared with a year earlier as demand for products remained strong and the virus continued to disrupt manufacturing and transportation.U.S. consumers were not slowed by surging coronavirus cases in November, when more than 30 states saw sustained increases in infections and hospitalizations climbed in certain areas of the country. More