Inflation in the US is rising to 8.5%, CPI shows, while higher gas prices are knocking consumers down

The numbers: The US inflation rate peaked at 8% in March for the first time in four decades and showed little sign of easing, explaining the newly discovered urgent need for the Federal Reserve to quickly undo its easy-money strategy.

The consumer price index rose 1.2% last month, driven by higher costs for gasoline, food and housing, the government said Tuesday. It was the largest monthly gain since Hurricane Katrina in 2005.

The rise in the cost of living has hit new heights for several months. The inflation rate over the past year rose to 8.5% in March from 7.9%.

The last time inflation reached 8% was in January 1982, when Ronald Reagan was president.

High inflation has alarmed Americans and put political heat on the Biden administration.

Rising prices surpass the fastest wage increases in four decades, and studies show that inflation is the public’s biggest concern. It hurts Democrats in the polls ahead of the crucial congressional election this fall.

The rise in inflation exceeded Wall Street’s forecast of a 1.1% increase. However, both equities and bonds were lifted according to the CPI report. Equity index futures extended gains to trade moderately higher while government bond yields retreated.

The rise in inflation may soon begin to ebb, economists say, if oil prices stabilize and the supply shortage finally begins to ease.

But it could take a few years or even longer, they say, before inflation falls back to pre-crisis levels of less than 2%. Some even worry that higher inflation is here to stay.

A potential sign that inflation could peak was the smallest increase in six months in so-called core inflation, which removes food and energy. It rose only 0.3% last month.

The Fed sees the key interest rate as a more accurate measure of inflationary trends, but most Americans still pay a large portion of their budget for fuel and meals.

The increase in the so-called core interest rate over the past year has risen to the highest level in 40 years at 6.5% from 6.4%.

Large image: High inflation is popping up everywhere: at gas stations, grocery stores, big chains like Best Buy BBY,
+3.20%
and online sellers like Amazon AMZN,
+1.31%.
Rents and house prices have also risen.

The Fed is moving faster than previously planned to raise interest rates in an attempt to tame inflation. Higher borrowing costs may curb demand for consumer goods and business supplies and help ease the upward pressure on prices.

However, the Fed is in a difficult situation. If it does not act fast enough, inflation could get stuck in the economy and hurt the United States in the long run. But if it goes too aggressively, the central bank could trigger a recession.

For now, most economists and investors take a wait-and-see approach and do not bet on any of the scenarios.

Key details: Gasoline costs jumped 18% in March, accounting for more than half of the increase in cost of living last month.

The average price of a gallon of ordinary gas in the United States rose to as high as $ 4.32 in March from $ 3.61 in the previous month and $ 2.87 a year earlier. In some parts of the country, prices even reached $ 7 per barrel. gallon.

The Russian invasion of Ukraine drove oil prices to a 13-year high, but fuel prices had already risen sharply before the war. They are expected to remain high as the summer driving season approaches.

Food prices also rose 1% for the second month in a row – and they are likely to continue to rise. Both Ukraine and Russia are major grain exporters, and the price of fertilizer has also risen. Fertilizers are produced using fossil fuels.

Grocery prices have escalated by 10% in the last 12 months – the biggest jump since 1981.

Expenditure on rent and housing both rose 0.4% in March and continued to march higher. These costs tend not to fall rapidly except for a recession.

Over the past year, the cost of shelter has risen by 5% to mark the largest increase in 40 years, which has put further pressure on families. Expenditure on shelter accounts for a third or more of a typical household budget.

Prices also rose last month for medical care, airline tickets, car insurance, furniture and clothing.

Expenditure on used vehicles, prescription drugs and communications fell.

Used car prices fell for the second time in a row for the first time since last summer, which helped pull core inflation down.

Inflation-adjusted wages, meanwhile, fell by 0.8% in March.

Real income has fallen by 2.7% in the past year, signaling that workers are lagging behind despite the largest rise in wages since the early 1980s. Inflation is rising even faster.

Look forward to: “The war between Russia and Ukraine has added additional fuel to the blazing inflation through higher energy, food and commodity prices, which are turbocharged by a worsening of supply chain problems,” said Kathy Bostjancic, US financial economist at Oxford Economics.

“If there’s a dash from today’s report, it is that core inflation – as opposed to overall 8.5% annual inflation – has moderated somewhat,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance in Charlotte, NC

Market reaction: In pre-market trading, the Dow Jones Industrial Average is DJIA,
+0.84%
and S&P 500 SPX,
+1.03%
the index was set to rise in Tuesday trading. Bond yields TMUBMUSD10Y,
2,720%
dipped.

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