Brisk consumer spending collides with snarled supply chains.

WASHINGTON (AP) — A measure of prices that is closely tracked by the Federal Reserve rose 5.8% last year, the sharpest increase since 1982, as brisk consumer spending collided with snarled supply chains to raise the costs of food, furniture, appliances and other goods.

The report Friday from the Commerce Department also said that consumer spending fell 0.6% in December, with purchases of cars, electronics, and clothes declining. Higher prices might have discouraged some shoppers, along with a wave of omicron cases that kept many Americans from traveling, eating out or visiting entertainment venues.

At the same time, incomes rose 0.3% last month, providing fuel for future spending.

Stubbornly high inflation has hammered household budgets, wiped out last year's healthy wage gains and posed a severe political challenge to President Joe Biden and Democrats in Congress. It also led the Federal Reserve to signal Wednesday that it plans to raise interest rates multiple times this year beginning in March to try to get accelerating prices under control.

With consumer spending likely remaining weak, economists project that growth will slow in the first three months of the year to a 1.5% annual rate or even less. That would be down drastically from a strong 6.9% rate in the final three months of 2021.

In another cautionary sign, a measure of consumer sentiment dropped this month to its lowest level in more than a decade, the University of Michigan reported Friday. Consumers are particularly worried about inflation eroding their incomes.

Still, economists say steady job gains and increased savings should eventually drive more spending later this year, especially if the omicron wave keeps fading.

"You're going to see the labor market continue to heal, and, the pandemic permitting, the consumer will have enough firepower to grow spending at a reasonable rate as the year goes on," said Joshua Shapiro, chief U.S. economist at MFR Inc.

Most analysts still expect inflation to decelerate this year, though it will likely remain high as rents and wages increase.

Excluding the volatile food and energy categories, so-called core prices rose 4.9% last year, the biggest increase since 1983. That was up from a 4.7% yearover-year rise in core prices in November.

From November to December, prices rose 0.4%, down from a 0.6% increase from October to November. Core prices rose 0.5% for a second straight month.

The economy is expanding at its fastest pace in decades, and job creation reached a fivedecade high last year. But the rebound occurred so quickly after the pandemic shutdowns that it left many companies flatfooted, with fewer workers and supplies than they needed. Spending on autos, electronics and other goods jumped 12% in 2021, the government reported Wednesday, the biggest increase since 1946.

Besides raising interest rates, Chair Jerome Powell said Wednesday that the Fed will move to shrink its huge $8.9 trillion of bond holdings this year, another step that will likely tighten credit, slow spending and potentially weaken the economy.

Speaking at a news conference, Powell acknowledged that inflation has gotten "slightly worse" in the past month. He cautioned that higher prices "have now spread to a broader range of goods and services," after initially affecting sectors of the economy, like factory-made products for homes, that were most disrupted by the pandemic.

Powell also said the Fed is increasingly focused on the question of whether rising wages are acting as a primary driver of inflation, by forcing companies to charge more to cover their higher labor costs. Such a "wage-price spiral," which the United States hasn't experienced since the 1970s, can make inflation difficult to cool.

A separate report Friday provided some signs of cooling on that front. The Labor Department said that workers' salaries and benefits jumped 4% last year. That was the biggest rise in two decades. But over the past three months, the increase slowed from 1.3% to 1% and dropped even more for a category that includes restaurant and hotel workers.