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Mortgage rates have moved to their highest level in more than a year, and that may have potential homebuyers nervous that their affordability window is closing faster than expected. Home prices are still gaining, and winter is historically the slowest season for the housing market, but mortgage demand from buyers moved higher.

Last week purchase loan application volume rose 2% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. This jibes with anecdotal comments from real estate agents that they are seeing higher-than-normal early January demand. Applications were still 17% lower than the same week one year ago, but some of that is due to much lower supply in the market. Supply usually increases in December, but it did not last month.

This, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.52% from 3.33%, with points decreasing to 0.45 from 0.48 (including the origination fee) for loans with a 20% down payment. That is the highest rate since March 2020. It was 64 basis points lower the same week one year ago.

“Mortgage rates increased significantly across all loan types last week as the Federal Reserve’s signaling of tighter policy ahead pushed U.S. Treasury yields higher,” said Joel Kan, an MBA economist. “The housing market started 2022 on a strong note. Both conventional and government purchase applications showed increases, with FHA purchase applications increasing almost 9%, and VA applications increasing more than 5%.”

FHA and VA loans are low and no down payment options often used by first-time buyers.

Applications to refinance a home loan fell 0.1% from the previous week and were 50% lower than the same week one year ago. Refinance volume is now at the lowest level in more than a month. As mortgage rates rise, fewer and fewer borrowers can benefit from a refinance.

Mortgage rates rose sharply on Monday of this week, according to Mortgage News Daily, but settled back slightly on Tuesday.

“The big question now is whether the worst is now over for this abrupt move toward higher rates. The answer is a definitive ‘maybe!’ It might even be ‘probably,'” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “Unfortunately, that doesn’t mean rates can’t go higher, simply that the pace may be moderating from here.”

Inflation plowed ahead at its fastest 12-month pace in nearly 40 years during December, according to a closely watched gauge the Labor Department released Wednesday.

The consumer price index, a metric that measures costs across dozens of items, increased 7%, according to the department’s Bureau of Labor Statistics. On a monthly basis, CPI rose 0.5%.

Economists surveyed by Dow Jones had been expecting the gauge to increase 7% on an annual basis and 0.4% from November.

The annual move was the fastest increase since June 1982 and comes amid a shortage of goods and workers and on the heels of unprecedented cash flowing through the U.S. economy from Congress and the Federal Reserve.

Despite the strong gain, stocks rose after the news while government bond yields were mostly negative.

“The December CPI report of a 7% increase over the last 12 months will be shocking for some investors as we haven’t seen a number that high” in almost 40 years, said Brian Price, head of investment management at Commonwealth Financial Network. “However, this print was largely anticipated by many, and we can see that reaction in the bond market as longer-term interest rates are declining so far this morning.”

Excluding food and energy prices, so-called core CPI increased 5.5% year over year and 0.6% from the previous month. That compared with estimates of 5.4% and 0.5%. For core inflation, it was the largest annual growth since February 1991.

Shelter costs, which make up nearly one-third of the total rose 0.4% for the month and 4.1% for the year. That was the fastest pace since February 2007.

Used vehicle prices, which have been a major component of the inflation increase during the Covid pandemic due to supply chain constraints that have limited new vehicle production, rose another 3.5% in December, bringing the increase from a year ago to 37.3%.

Conversely, energy prices mostly declined for the month, falling 0.4% as fuel oil was down 2.4% and gasoline fell 0.5%. Still, the complex as a whole rose 29.3% in the 12-month period, including a gain of 49.6% for gasoline.

Fed officials are watching the inflation data closely and are widely expected to raise interest rates this year in an effort combat increasing prices and as the jobs picture approaches full employment. Though the central bank uses the personal consumption expenditures price index as its primary inflation measure, policymakers take in a wide range of information in making decisions.

“This morning’s CPI read really only solidifies what we already know: Consumer wallets are feeling pricing pressures and in turn the Fed has signaled a more hawkish approach. But the question remains if the Fed will pick up the pace given inflation is seemingly here to stay, at least in the medium-term,” said Mike Loewengart, managing director for investment strategy at E-Trade. “With Covid cases continuing to rise, the impact on the supply chain and labor shortages could persist, which only fuels higher prices.”

Inflation has been eating into otherwise strong wage gains for workers. However, real average hourly earnings posted a small 0.1% increase for the month, as the 0.6% total gain outweighed the 0.5% CPI headline increase. On a year-over-year basis, real earnings declined 2.4%, according to BLS calculations.

Fed officials largely attribute rising inflation pressures to pandemic-specific issues in which a shortage of workers has led to clogged supply chains and empty store shelves. Though there are signs the omicron variant cases could peak soon, lingering Covid issues combined with cold weather in the Northeast point “to renewed upward pressure on food prices,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.

Food prices broadly rose 0.5% for December and were up 6.3% on a 12-month basis, the biggest rise since October 2008.

Investors largely expect the Fed to start raising rates in March. Fed Chairman Jerome Powell, at his confirmation hearing Tuesday before the Senate banking panel, did not provide any specific dates but acknowledged that as long as current conditions persist, rate hikes are on the way.

Markets are pricing a nearly 79% chance for the first quarter-percentage point increase to come in May, and see about a 50% chance the Fed could enact four such hikes in 2022, according to the CME’s FedWatch Tool.

Empty shelves have returned at supermarkets as grocery employees call out sick and truckloads of food arrive late.

That’s one of the latest outcomes of the omicron variant, which is straining the workforce. Investors are seeing the pressure and bracing for a longer period of high costs for labor, transportation and food.

Shares of major grocers including Albertsons, Kroger and Walmart fell Tuesday. Albertsons shares fell 9.75% to $28.79 at market close, after the company detailed the supply chain challenges and inflated costs it’s seeing on its earnings call. The dive in its stock occurred even though the grocer raised its fiscal 2021 forecast. Shares of Kroger fell about 3%, while Walmart shed less than 1%.

Covid cases and hospitalizations have hit records in the U.S., as the highly contagious variant spreads. The country reported about 1.5 million new cases on Monday, according to data compiled by Johns Hopkins University. Hospitalizations have surpassed last winter’s peak, with 144,441 Americans hospitalized with the virus as of Sunday, according to data tracked by the Department of Health and Human Services.

Grocery store workers are feeling the effects of omicron, too. Samantha Webster helps replenish coolers with butter, gallons of milk and more as dairy manager of a Safeway store in the San Francisco Bay Area. Safeway is owned by Albertsons.

Since early December, she said more and more employees have had to take off from work because of getting Covid or having close contact with someone who is sick. She said 15 employees are currently out of the store’s nearly 60-person staff.

Fewer pallets are arriving from Safeway’s warehouses and there are not enough grocery workers to help unload them, she said.

In the dairy department, there are gaping holes where there used to be cream cheese and yogurts. Fresh bagels and loaves of bread are missing in the bakery aisle. And in the produce department, potatoes are running low.

In other aisles, she said there are signs of strain, too, such as a shelf filled with cans of clam chowder soup because other varieties, like minestrone and pea soup, did not arrive.

“The shelves are becoming more and more bare,” she said. “One person can’t keep an entire department going.”

Albertsons CEO Vivek Sankaran said on the call that the grocer has had low inventory or missing items in some categories for several months. He said the latest spike in Covid cases is prolonging some of those out-of-stocks.

“We were expecting that supply issues to get more resolved as we go into this period right now,” he said on the call. “Omicron has put a bit of a dent on that. So there are more supply challenges and we would expect more supply challenges over the next four weeks to six weeks.”

The new coronavirus variant is exacerbating worker shortages across industries, from restaurants and retailers to airlines. Company leaders are being forced to make tough decisions, such as slashing service hours, canceling flights and closing stores. That has started to show up in the sales numbers, too. Lululemon is among the retailers that have warned that fourth-quarter earnings and revenue would be on the low end of estimates as it feels the effects of having reduced hours and limited staff.

For grocers, though, the challenge may be felt more because it is low-margin business where companies often have less room to raise employee wages, pay for overtime or pass on higher costs to customers. Some shoppers have less money to spend, too. The child tax credit, which gave families monthly payments, ended in December.

On Tuesday, Albertsons leaders said that costs have risen on ingredients, packaging, transportation and labor. They said the grocer has passed through some of that inflation, but has tried to hold the line on prices of essential items that customers buy frequently.