Inflation hit a new record of 40 years in March as U.S. consumer prices rose 8.5% from a year ago, the Labor Department said Tuesday.
The Consumer Price Index, which tracks commodities and services, jumped 1.2% in March after rising 0.8% in February, indicating that inflation picked up last month. Nuclear inflation, which radiates volatile food and energy costs, has risen 6.5% from a year ago.
Nearly half of the recent increase in inflation came from rising gas costs, which climbed 18% in March to reach a record high ofThe cost of food and shelter also increased, with aviation rates, health and car insurance and furniture contributing to the increase.
More positive for consumers, used cars and trucks, a major driver of inflation last year, fell 3.8% in March.
“Economic viability will be tested”
Although prices continue to rise, some economists think that inflation may peak and that it is likely to decline for the rest of the year.
,[T]the monthly increase in clothing, recreation and food away from home have all been smaller than in recent months, perhaps suggesting that the peak upward pressure on wages in the service sector is over, “said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note.
Another weak silver lining is that core inflation – despite reaching the highest level since 1982 – was not as bad as expected to fall, tempered by prices of some goods and used cars in particular.
While it is plausible to ask households to oversee rising prices at the gas station and supermarket, the Federal Reserve is paying more attention to core inflation when setting policies because it is less volatile. Core inflation on a month-on-month basis has moderated to its slowest level since September.
“Hopefully this is as bad as it gets,” Brian Jacobsen, senior investment strategist at Allspring Global Investments, told the Associated Press. “The risk is that a red hot labor market will grow cold under the force of those higher costs for food, fuel and financing. This is a time when economic resilience is being tested.”
The report comes when the Biden administration announces pressure to reduce gas prices by giving awayon gasoline sold in the summer and ,
Cost increases are the most pressing issue for many Americans, afound this week. Two-thirds of those saying rising prices are a difficulty for their families, with about the same number reporting that it is cutting back on travel, entertainment or driving. Cost increases have increased wages for 11 months, ,
Russia’s war on Ukraine, and the sanctions imposed on it by Western nations, add another level of uncertainty. The conflict is stifling suppliers of fossil fuels, food and precious metals from the world.
“The war in Ukraine and economic sanctions on Russia have endangered global energy supplies,” Brian Coulton, chief economist at Fitch Ratings, said in a note. “The jump in oil and gas prices will increase the cost to industry and reduce the real income of consumers. Immediate shortages and energy rationing are possible in Europe if there is an abrupt halt to Russian supply. Higher energy prices are of course. “
Fed moves to raise rates
The rising rate of inflation has become the biggest concern for the central bank of the US, with policymakers indicating that they will move decisively to reduce cost increases by raising rates.
The Federal Reserve is expected to increase its key interest rate by half a percentage point at each of its next two meetings – something it has not done in two decades.
Higher interest rates slow the economy by making borrowing more expensive, and hopefully lowering high inflation. The concern is that the Federal Reserve may be so aggressive with its hedges that it is forcing the economy into a recession.
Higher interest rates also put downward pressure on all kinds of investments, with those seen as the most expensive hit. This is because as investors become more interested in owning relatively safe bonds, they are less willing to pay higher prices for risky stocks. Technology and other high-growth stocks that have been some of the stock market’s biggest recent winners have been particularly in the spotlight.