WASHINGTON (AP) – With rising costs for food, gasoline, housing and other necessities pushing consumers and threatening the economy, US inflation was likely to hit another four-decade high in March.
The government’s consumer price index, released on Tuesday, is expected to show prices rose 8.4% from 12 months earlier, according to economists surveyed by data firm FactSet. It would mark the fastest year-on-year inflation since December 1981. And it would surpass the 7.9% increase in 12 months in February, which in itself set a peak in 40 years.
Economists have also predicted that consumer prices rose 1.1% from February to March. That would be the sharpest jump from month to month since 2005.
The figures for March will be the first to capture the full rise in gasoline prices following Russia’s invasion of Ukraine on 24 February. Moscow’s brutal attacks have unleashed far-reaching Western sanctions on the Russian economy and disrupted global food and energy markets. According to AAA, the average price of a gallon of gasoline – $ 4.11 – has risen 44% from a year ago, although it has fallen back in the last few weeks.
The escalation of energy prices has led to higher transport costs for shipping goods and components across the economy, which in turn has contributed to higher prices for consumers.
“The war in Ukraine has complicated the inflation outlook,” said Luke Tilley, chief economist at the Wilmington Trust.
Economists point out that since the economy emerged from the depths of the pandemic, consumers have gradually expanded their consumption beyond goods to include more services. As a result, high inflation, which initially mainly reflected a shortage of goods – from cars and furniture to electronics and sports equipment – has also gradually emerged in services such as travel, healthcare and entertainment.
If price figures for March come in as expected, they will bolster expectations that the Federal Reserve will raise interest rates aggressively in the coming months to try to curb borrowing and consumption and tame high inflation. In fact, financial markets are now predicting much steeper rate hikes this year than Fed officials had signaled as recently as last month.
Central bank rate hikes will make loans significantly more expensive for consumers and businesses. In particular, mortgage rates, although not directly affected by the Fed, have risen sharply in recent weeks, making home purchases more expensive. Many economists say they are concerned that the Fed has waited too long to start raising interest rates and may end up acting so aggressively that it triggers a recession.
So far, the economy as a whole remains solid, with unemployment close to its lowest level in 50 years and job openings close to record highs. Yet violent inflation, with its impact on Americans’ daily lives, poses a political threat to President Joe Biden and his Democratic allies as they seek to retain control of Congress in the November midterm elections.
Economists generally express doubts that even the sharp rate hikes expected from the Fed will be able to reduce inflation near the central bank’s annual target of 2% by the end of this year. Tilley, a Wilmington Trust economist, said he expects consumer inflation to remain 4.5% year-on-year by the end of 2020. Before Russia’s invasion of Ukraine, he had predicted a much lower 3% rate.
In Tuesday’s government report, so-called core inflation for the past 12 months, even excluding volatile food and energy prices, is expected to have hit 6.6% according to the FactSet survey. It would be the biggest jump from year to year since August 1982.
Inflation, which had been largely under control for four decades, began to accelerate last spring as the U.S. and global economies rose at unexpected speed and strength from the brief but devastating corona recession that began in the spring of 2020.
The recovery, driven by huge inflows of government spending and super-low interest rates, surprised companies and forced them to struggle to meet growing customer demand. Factories, ports and cargo yards struggled to keep up, leading to chronic shipping delays and price increases.
Critics also partially blame the Biden administration’s $ 1.9 trillion stimulus program in March 2021, which included $ 1,400 emergency checks for most households, to help overheat an already sizzling economy.
Many Americans have received wage increases, but the pace of inflation has more than obliterated these gains for most people. In February, the average hourly wage fell by 2.5% after taking inflation into account compared to the previous year. It was the 11th consecutive monthly drop in inflation-adjusted wages.