The price index that the Federal Reserve watches most closely climbed 6.6 percent in the year through March, the fastest pace of inflation since 1982 and the latest reminder of the painfully rapid price increases plaging consumers and challenging policymakers.
But much of the gain in the Personal Consumption Expenditures price index, released Friday, was driven by a pop in energy prices that came early in Russia’s invasion of Ukraine along with rising food costs. After stripping out volatile food and fuel prices, a core index climbed by a more muted 5.2 percent in the year through March.
On a monthly basis, that core measure picked up by 0.3 percent, slightly slower than its pace the previous month.
Central bank and White House officials spent much of 2021 hoping that a pandemic-era surge in used car prices and cost increases in other goods would fade as supply chains returned to normal, and strong demand cooled. But inflation has remained too high for the Fed’s comfort for a year, despite occasional hopeful signs like the latest monthly slowdown in the core measure, and its persistence is now drawing a firm response from the central bank.
Policymakers lifted interest rates in March for the first time since 2018, and have set the stage for an even larger rate increase at their meeting next week. Many Fed officials now expect to raise rates back to a neutral setting — around 2 percent — by the end of the year as they try to slow down borrowing, temper demand and allow supply to catch up. The goal is to help cool off inflation so that it does not become locked into consumer and business expectations, which might make it a more permanent feature of America’s economy.
The task ahead is difficult. The Fed has in the past caused recessions while trying to weigh down high inflation. Officials are constraining demand just as the war in Ukraine ramps up uncertainty and threatens to keep prices for gas and other commodities elevated, potentially making the central bank’s job even more challenging.
White House officials have been emphasizing the role that the war is playing in elevating inflation, often blaming President Vladimir V. Putin of Russia for higher prices. While Russia’s invasion did push gas prices sharply higher last month, inflation had been high for months before the conflict.
Government spending helped fuel some of that increase. As households received stimulus checks and expanded unemployment benefits in 2020 and 2021, they built up cash buffers, which has helped to sustain fervid spending on couches, cars and grills even as costs have climbed higher. Strong demand for goods in particular collided with shutdowns of overseas factories and overburdened transit routes to spur shortages and push prices up.
Now, though, inflation has become broader. As employers struggle to hire enough workers to meet strong consumer demand, they are paying higher wages. A separate data release on Friday showed that a measure of employment costs that the Fed tracks closely picked up by 1.4 percent in the first quarter of 2022, more than expected, as private-sector wages and salaries rose 1.3 percent.
Rising labor costs could prompt some businesses to charge more. It could also help households to keep up their spending.
Consumers continued to shop at a brisk pace in March: Friday’s report showed that personal spending climbed 1.1 percent before accounting for inflation and 0.2 percent after adjusting for price increases. Both of those increases were more than the median that economists in a Bloomberg survey had expected.
As wage growth and continue, the Fed is trying to slow the economy down to prevent widespread price pressures from becoming embedded. While officials still expect price increases to begin fading soon, they are no longer betting on and waiting for that outcome.
“In the case of the United States, we had an expectation that inflation would peak around this time and then would come down,” Jerome H. Powell, chair of the Fed, said at an event last week. “These expectations have been disappointed in the past.”
The outlook for price gains in the months ahead are unusually uncertain. On one hand, the Fed’s pivot on interest rates has pushed mortgage rates sharply higher, which may start to weigh down the housing market and cool off related types of demand. Already, some companies — like the washing-machine maker Whirlpool — are seeing consumer demand wane compared with last year, though it is elevated relative to its prepandemic levels.
But costs for key inputs continue to climb, and that may remain the case as China locks down key cities to contain the coronavirus and as the war in Ukraine keeps some supply lines under strain.
At Whirlpool, higher input prices are prompting the company to charge consumers more.
“Historic levels of inflation, notably in raw materials, energy and logistics, will impact us throughout the year,” James W. Peters, the company’s chief financial officer, said in an April 26 conference call. “However, our previously announced pricing actions are on track and position us to fully offset cost inflation as we exit the year.”
Many products were already struggling to return to normal inventory levels before Russia invaded Ukraine and roiled commodity markets. Cars and trucks, for instance, remained in short supply thanks to shortages of key parts — most critically semiconductors. Executives at Ford said this week that the company had 53,000 vehicles built but that they were awaiting chips.
“Customers’ demand is extremely strong,” Jim Farley, the chief executive officer at Ford, said in an April 27 earnings call. “However, we are still grappling with persistent supply chain issues that prevent us from posting even stronger quarter.”