Gasoline drives up US consumer prices; inflation probably peaked

  • Consumer prices rose 1.2% in March
  • Gasoline accounts for more than half of the increase in CPI
  • CPI jumps 8.5% year-on-year; may have peaked
  • Core CPI rises 0.3%; increases 6.5% year-on-year

WASHINGTON, April 12 (Reuters) – US monthly consumer prices rose the most in 16-1 / 2 years in March, as Russia’s war against Ukraine raised gasoline costs to record highs, cementing the argument for a 50 basis point rate hike from the Federal Reserve next month.

The rise in prices reported by the Ministry of Labor on Tuesday culminated in annual inflation rising at the fastest pace since the end of 1981. But there were some glimmers of hope as the monthly underlying price pressure rose moderately as motor vehicle prices cooled. Economists also believe that overall inflation has peaked.

“The Fed will take a little bit of comfort from today’s report, but it still has a lot of work to do to restore price stability,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.

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The consumer price index accelerated 1.2% last month, the largest monthly increase since September 2005. The CPI rose 0.8% in February. An 18.3% increase in petrol prices accounted for more than half of the increase in CPI.

Gasoline prices at the pump rose, on average, to a record high of $ 4.33 per liter. gallon in March, according to AAA.

Russia is the world’s second largest crude oil exporter. The United States has banned the import of Russian oil, liquefied natural gas and coal as part of a series of sanctions against Moscow for its invasion of Ukraine.

In addition to pushing up petrol prices, the war between Russia and Ukraine, now in its second month, has led to a global rise in food prices, as Russia and Ukraine are also major exporters of raw materials such as wheat and sunflower oil.

Outside of petrol, the rise in inflation was everywhere. Food prices rose by 1.0% and the price of food consumed at home rose sharply by 1.5% on the back of large increases across all categories. However, the price of food consumed away from home moderated as an increase of 0.7% in full-service meals was partially offset by a decrease of 0.2% in limited service meals, the first decrease since October 2018.

In the 12 months to March, the CPI rose 8.5%. It was the largest year-on-year increase since December 1981, following a jump of 7.9% in February. It was the sixth month in a row with annual CPI readings north of 6%.

Last month’s rise in inflation was in line with economists’ expectations.

The strong CPI readings followed in the heels of the news last month that unemployment fell to a new two-year low of 3.6% in March. The tight labor market feeds on wage inflation.

In March, the US Federal Reserve raised its policy rate by 25 basis points, the first increase in more than three years. The minutes of the political meeting, which was published last Wednesday, seemed to form the basis for large interest rate increases along the way.

High inflation and the Fed’s high-minded stance have led the bond market to fear a US recession, although most economists expect the expansion to continue.

US stocks opened higher. The dollar was stable against a basket of currencies. US government interest rates fell.

MONTHLY CORE CPI SLOW

Economists believe that March may mark the peak of the annual CPI rate, but warns that inflation will remain well above the Fed’s 2% target at least through 2023.

Gasoline prices have been pulled back from record highs, but still remain above $ 4 per gallon. Last year’s high inflation measurements will also start to fall from the CPI calculation.

“March may prove to be the peak of year-on-year inflation targets for this cycle,” said Ben Ayers, a senior economist at Nationwide in Columbus, Ohio. “Nevertheless, given the high starting point and the likelihood of further delays in the recovery of supply chains, inflation measurements should remain highly elevated through 2022 and into 2023.”

Another consecutive monthly drop in the prices of used cars and trucks resulted in a tame monthly reading for underlying inflation. Prices of new motor vehicles also fell. Excluding the volatile food and energy components, the CPI rose 0.3% after rising 0.5% in February.

A 0.5% increase in housing costs accounted for almost two-thirds of the increase in the so-called core CPI. A key target for rent, the owners’ corresponding rent for primary housing, increased by 0.4%. The cost of hotel and motel accommodation also rose sharply.

Air fares rose 10.7 per cent. Household furniture also cost more and did motor insurance, clothing, recreation and personal care. The cost of healthcare increased by 0.5%, with both doctor visits and hospital services rising solidly. But the prices of prescription drugs fell 0.2 per cent.

Core CPI rose 6.5% in the 12 months to March, the largest increase since August 1982, following a 6.4% increase in February.

Shutdowns in China to curb a resurgence of COVID-19 infections are seen putting more pressure on global supply chains, which could keep commodity prices rising. Separately, rising rents are also expected to keep core inflation warm.

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Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

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