March inflation likely hit 40-year high

WASHINGTON (AP) — With the costs of food, gas, housing and other necessities steadily rising, crushing consumers and threatening the economy, inflation in the United States has likely hit a new high. four-decade high in March.

The government’s consumer price index released on Tuesday is expected to show prices rose 8.4% from 12 months earlier, according to economists polled by data firm FactSet. That would mark the fastest year-on-year inflation since December 1981. And it would top the 7.9% 12-month increase in February, which itself hit a 40-year high.

Economists also forecast that from February to March, consumer prices jumped 1.1%. That would be the biggest month-to-month jump since 2005.

The March figures will be the first to capture the spike in gasoline prices that followed Russia’s February 24 invasion of Ukraine. Moscow’s brutal attacks triggered far-reaching Western sanctions against the Russian economy and disrupted global food and energy markets. According to AAA, the average price of a gallon of gas – $4.11 – is up 44% from a year ago, although it has fallen over the past two weeks.

Escalating energy prices have led to higher transportation costs for shipping goods and components across the economy, which in turn has contributed to higher prices for consumers.

“The war in Ukraine has complicated the outlook for inflation,” noted Luke Tilley, chief economist at Wilmington Trust.

Economists point out that since the economy emerged from the depths of the pandemic, consumers have gradually expanded their spending beyond goods to include more services. As a result, high inflation, which initially reflected mainly a shortage of goods – from cars and furniture to electronics and sports equipment – ​​gradually made its way into services as well, such as travel, healthcare and entertainment.

If the March price numbers are in line with expectations, they will reinforce expectations that the Federal Reserve will raise rates aggressively in the coming months in an attempt to slow borrowing and spending and tame high inflation. In fact, financial markets are now pricing in much steeper rate hikes this year than announced by Fed officials last month.

Central bank rate hikes will make loans significantly more expensive for consumers and businesses. Mortgage rates in particular, although not directly influenced by the Fed, have skyrocketed in recent weeks, making buying a home more expensive. Many economists say they worry that the Fed waited too long to start raising rates and that it would end up acting so aggressively that it would trigger a recession.

For now, the economy as a whole remains strong, with unemployment near a 50-year low and job openings near record highs. Yet soaring inflation, with its impact on the daily lives of Americans, poses a political threat to President Joe Biden and his Democratic allies as they seek to retain control of Congress in the midterm elections. of November.

Economists generally express doubts that even the large rate hikes expected from the Fed will manage to reduce inflation anywhere near the central bank‘s annual target of 2% by the end of the year. end of this year. Wilmington Trust economist Tilley said he expects year-over-year consumer inflation to still be 4.5% by the end of 2020. Before the invasion of Ukraine by Russia, he had predicted a much lower rate of 3%.

In Tuesday’s government report, even excluding volatile food and energy prices, so-called core inflation for the past 12 months is expected to have reached 6.6%, according to the FactSet survey. It would be the biggest year-over-year jump since August 1982.

Inflation, which had been largely under control for four decades, began accelerating last spring as the US and global economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in spring 2020.

The recovery, fueled by huge injections of government spending and rock-bottom interest rates, has taken businesses by surprise, forcing them to scramble to meet growing customer demand. Factories, ports and freight stations have struggled to keep up, leading to chronic shipping delays and price spikes.

Critics also blame, in part, the Biden administration’s March 2021 $1.9 trillion stimulus package, which included $1,400 relief checks for most households, of contributing to overheating. an already sizzling economy.

Many Americans received pay raises, but the pace of inflation more than wiped out those gains for most people. In February, after taking inflation into account, the average hourly wage fell by 2.5% compared to the previous year. It was the 11th consecutive monthly drop in inflation-adjusted wages.

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