US inflation has soared over the past year, reaching its fastest pace in more than 40 years. The costs of food, gas, housing and other necessities are pinning down American consumers and wiping out the impact of wage increases many people have received.
The Labor Department said Tuesday that its consumer price index jumped 8.5% in March from the same month last year, posting its largest year-over-year increase since December. 1981. Prices were pushed up by bottlenecks in supply chains, strong consumer demand, and disruptions in global food and energy markets, the latter of which was accentuated by the Russia’s war against Ukraine. From February to March, inflation rose 1.2%, which was the largest month-over-month increase since 2005.
Year-over-year price spikes were widespread in March. Gasoline prices have climbed 48% over the past 12 months. Used car prices climbed 35.3%, although they fell in February and March. Prices for bedroom furniture are up 14.7%, those for men’s jackets, suits and coats, 14.5%. Grocery prices jumped 10%, including increases of 18% for bacon and oranges.
Even excluding volatile food and energy prices, which have fueled headline inflation, so-called core inflation jumped to 6.5% over the past 12 months, its highest level since 1982.
The March inflation data was the first to capture the full 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 gasoline – US$4.10 – is up 43% from a year ago, although it has been falling 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 dynamism of the Fed, engine of recession?
The latest evidence of accelerating prices will reinforce expectations that the Federal Reserve is preparing to aggressively raise interest rates in the coming months, in an attempt to slow borrowing and spending, and keep inflation under control. . Financial markets are now pricing in much steeper rate hikes this year than announced by Fed officials last month.
Even before the war in Russia spurred price increases, robust consumer spending, steady wage increases and chronic supply shortages had propelled US inflation to its highest level in four decades. . Additionally, housing costs, which account for about a third of the consumer price index, have risen, a trend that doesn’t seem likely to reverse any time soon.
Economists point out that as the economy emerged from the depths of the pandemic, consumers 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 – also appeared in services, such as travel, healthcare and entertainment.
The expected rapid pace of Fed rate hikes will make loans significantly more expensive for consumers and businesses. 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 mid-term election. November term.
The American public’s expectations for inflation over the next 12 months have risen to their highest level — 6.6% — in a survey conducted by the Federal Reserve Bank of New York since 2013.
Once public inflation expectations rise, they may eventually materialize: workers generally demand higher wages to offset their expectations of higher prices, and businesses, in turn, raise prices to cover their higher labor costs. This can trigger a wage-price spiral, a situation the country last faced in the late 1960s and 1970s.