Gas and Rent Prices Rise in March, Escalating Inflation
In March, prices were 8.5 percent higher than the previous year's same month. The Federal Reserve is poised to raise interest rates quickly due to persistently high inflation.
In March, consumer prices grew 8.5% year-on-year, the fastest rate since 1981, fueled by rising gas costs and rising rents, putting pressure on families' budgets and reducing their confidence in the U.S. economy.
During March, Russia's invasion of Ukraine pushed up gas prices significantly; on March 11, the U.S. average price for a gallon of regular gasoline was $4.33 per gallon. However, gas is just part of the story. Taking volatile fuel and food out of the equation, so-called core prices rose 6.5 percent in March, up from 6.4 percent in the year to February, which was also a rapid increase. Nonetheless, the core index provided a glimpse of hope: Core inflation dropped somewhat on a monthly basis, gaining 0.3 percent from February.
According to AAA, economists predict that price hikes will begin to slow in the coming months, thanks in part to lower fuel costs – a gallon of petrol cost $4.10 on Tuesday. Researchers predicted that customers would cease purchasing as many items as automobiles and appliances, thus relieving pressure on overcrowded supply chains and enabling prices for those products to moderate.
Given the increase in fuel prices in March, "these data are likely to reflect something of a peak," according to Gregory Daco, chief economist at Ernst & Young's strategy consulting firm, EY-Parthenon. Still, he believes it would be crucial to see whether the core figures slow down on a monthly basis this spring and summer.
A flurry of recent events may keep inflation uncomfortably high.
The expense of housing is rising. Wages are growing quickly, increasing companies' expenses and perhaps leading them to raise prices. In China, a coronavirus epidemic is closing cities and slowing manufacturing, while the conflict in Ukraine adds a significant amount of uncertainty to commodities pricing and supply chains.
After a full year of rising inflation, the Federal Reserve has shifted from cushioning the economy to rapidly reducing assistance. The latest monthly reading of the Consumer Price Index, which showed prices rising at the quickest rate since 1981, indicates that this trend is likely to continue.
When inflation started to surge last spring, Fed policymakers anticipated it to recede shortly, but this has been delayed. Tuesday's report provided encouraging hints that prices outside of energy may be slowing on a monthly basis. Still, how much and how soon price hikes would drop as supply chain disruptions persist and pressures spread into service categories such as rent remains uncertain.
The central bank started hiking interest rates last month and forecasted a series of policy adjustments to make borrowing money more costly to restrain consumer and corporate spending. The premise is that reduced demand will allow supply to catch up, so taming the inflationary surge.
The Fed is attempting to slow price rises before people and companies start to anticipate them year after year and begin to behave accordingly, making fast inflation a more permanent part of the economy. Although authorities agree that reaching such a favorable result would be difficult, the central bank intends to limit demand without weakening the employment market so much that a recession becomes unavoidable.
The Fed's Fight Against Inflation Continues