Inflation hit 8.5 percent in the United States last month, the fastest pace in 12 months since 1981, as soaring gasoline prices linked to Russia’s invasion of Ukraine triggered sharp increases from a collision of strong demand and supply shortages linked to the pandemic. .
Fuel prices have jumped to record levels in most parts of the country and grocery costs have risen, the Labor Department said Tuesday in its monthly Consumer Price Index report. Price pressures have been painful for American families, especially those on lower incomes who allocate a large portion of their budgets to necessities.
But the news wasn’t uniformly bad: The measure that excludes volatile food and fuel prices slowed slightly from February as used car prices fell. Economists and policy makers took this as a sign that commodity inflation may begin to ease after rising at a brisk pace for most of the past year.
In fact, many economists said March could be a milestone for general inflation. Price increases could begin to slow in the coming months in part because gasoline prices have fallen somewhat — the national average was $4.10 a gallon on Tuesday, according to AAA, down from $4.33 in March. Some researchers also expect that consumers will stop buying so many goods, whether it’s outdoor furniture or equipment, which can begin to take the pressure off overburdened supply chains.
“These numbers are likely to represent a peak,” said Gregory Daco, chief economist at Ernst & Young strategic consulting, EY-Parthenon. However, he said, it will be necessary to monitor whether price increases excluding food and fuel – the so-called core prices – slow in the coming months.
The White House pause would be welcome news, as inflation has become a major drag for Democrats as the November midterm elections approach. Public confidence in the economy has fallen sharply, and as rapid price increases undermine support for President Biden and his party, their control of Congress has been jeopardized.
While inflation is rising in most parts of the world as economies adjust to the pandemic and share supply chain problems, core prices have risen more sharply in the United States than they have in places like Europe and Japan.
That gave Republicans a talking point, especially since prices have overshadowed recent wage growth. Average hourly wages rose 5.6 percent in March, according to the Department of Labor. But factoring in inflation, average wages fell by 2.7%.
“Americans get paid less and less each month,” Senator Patrick J. Tommy, Republican of Pennsylvania, wrote on twitter after the report.
Understand inflation in the United States
While the Federal Reserve has the primary responsibility for controlling inflation, the administration has taken steps to combat price hikes. Biden announced on Tuesday that the summer ban on sales of high-ethanol blend gasoline would be suspended this year, a move White House officials said was aimed at lowering gas prices.
The action followed the president’s decision last month to release 1 million barrels of oil per day from the US Strategic Petroleum Reserve over the next six months.
“I am doing everything I can, by executive order, to bring prices down and address Putin’s price hikes,” Biden said in Iowa on Tuesday afternoon, referring to Russian President Vladimir Putin. Inflation had risen sharply before the war in Ukraine, although the conflict has added pressure on energy and commodity prices.
There are some hopeful signs that inflation may slow in the coming months.
The first is largely mechanical. Prices started showing up last spring, which means that changes will be measured against a higher figure than last year in the coming months.
More importantly, March data showed that prices for some goods, including used cars and clothing, moderate or even declined – although the signal was somewhat inconsistent, with furniture prices rising sharply. If rapid commodity price inflation abates, it may help cool general inflation.
“It’s great to see moderation in this category,” Lyle Brainard, Federal Reserve Governor and Biden’s nominee to be the next central bank vice president, said in an online appearance hosted by The Wall Street Journal. “I will look to see if we continue to see moderation in the coming months.”
Between the slowdown in gasoline prices this month and a possible dip in commodity prices, even economists who have long expressed concern about inflation said it could start to ease.
“It’s better than odds that we won’t see a figure above 8.5 percent this year,” said Jason Furman, a Harvard economist who served as chair of President Barack Obama’s Council of Economic Advisers.
But even if inflation slows slightly, it will likely spend 2022 well above the Fed’s target, which it sets as 2 percent on average using a relevant but lagging price index.
The critical question is how far and how fast prices will fall, and recent developments are raising the risks that uncomfortably fast inflation may persist.
The costs of services, including rent and other housing expenses, are increasing more rapidly. These measures are moving slowly, and are likely to be a major factor in determining the course of inflation.
What is inflation? Inflation is the loss of purchasing power over time, which means your dollar won’t go as far as it did today. It is usually expressed as the annual change in the prices of everyday goods and services such as food, furniture, clothing, transportation, and toys.
Wages rose sharply, driving up costs for employers and possibly driving them up prices. Companies may feel that they have the ability to pass on increased costs to customers, and even to expand their profits, because consumers have kept spending through an entire year of rapid price increases.
And cheap goods are not guaranteed. The coronavirus outbreak has shut down cities and disrupted production in China, and the war in Ukraine is adding a massive dose of uncertainty over commodity prices and supply chains.
“The impact of these commodity price shocks, it could take some time to pass through the economy,” said Tim Mahdi, chief economist at US tax and advisory firm KPMG.
After a long period of rapid inflation, the US central bank has reacted, rather than waiting to see what happens next. Federal Reserve officials began raising interest rates last month and signaled that they would continue to push them “quickly” as they try to rein in lending, spending and demand, hoping to prevent sharp rate increases from becoming a more permanent feature of the US economy.
“It was a shock: We’ve had a decade where we haven’t been able to get inflation to 2 percent,” Federal Reserve Governor Christopher J. Waller said during Monday’s event. “Hopefully it will go away relatively quickly, that’s our job, and we’ll get it done.”
Policy makers are expected to raise rates by half a point at their meeting in early May, and have indicated that they will soon begin rapidly reducing their bond holdings, a change that should bolster higher rates and dampen demand. Ms Brainard suggested on Tuesday that such a plan could be announced as soon as possible in May, and come into effect as soon as June.
While she expected consumer demand to decline in the coming months as the government provided less financial assistance to households than in 2021 and with borrowing costs rising, Ms Brainard cited the war in Ukraine and Chinese lockdowns as risks that could reduce supply and keep inflation in check. High.
In a recent Bloomberg survey of economists, the average inflation forecast for the last three months of this year was 5.4 percent from a year earlier — well above the Fed’s target. Businesses and consumers regularly say that rapid inflation is disrupting their economic lives, and many express fears that it will not evaporate quickly.
Chris Wake, chief sales officer for trucking company Western Express, said during a panel hosted by the Federal Reserve on Monday.
She noted that truck drivers usually buy trucks when the demand for freight is as hot as it is now, tempted by the promise of high wages — but due to the lack of trucks, that extra capacity may be years away.
“The supply chain and the supply-to-demand ratio will not correct,” she said.
Ben Castleman And Anna Swanson Contribute to the preparation of reports.