Personal Consumption Expenditures Rose 6.6% Year to March, Fastest Since 1982.

by Wall Street Rebel | Michael London | 04/29/2022 10:18 AM
Personal Consumption Expenditures Rose 6.6% Year to March, Fastest Since 1982.

After excluding the volatile food and fuel costs, a core index rose by a more modest 5.2% in the year to March


The Personal Consumption Expenditures price index increased by 6.6% in the year through March, marking the fastest inflation rate since 1982 and the latest reminder of the painfully rapid price increases plaguing consumers and presenting policymakers with a difficult task.

An increase in energy prices that occurred before Russia invaded Ukraine and rising food prices accounted for most of the rise in the Personal Consumption Expenditures price index, which was announced on Friday. According to the Federal Reserve, after taking volatile food and fuel costs out of the equation, a core index rose by a more subdued 5.2% in the year through March.

Monthly, that core measure increased by 0.3%, which was a modest slowdown from the previous month’s rate of increase.

As supply chains returned to normal and high demand dropped, central bank and White House officials spent most of 2021 hoping that a pandemic-era jump in used vehicle prices and cost hikes in other items would subside. However, inflation has been too high for the Fed’s comfort level for more than a year, despite occasional encouraging indicators such as the current monthly fall in the core measure. The central bank’s persistence is now prompting a more forceful reaction.

For the first time since 2018, policymakers raised interest rates in March, paving the way for an even higher hike at their next meeting, which will take place the following week. According to Bloomberg, to cut down borrowing, temper demand, and enable supply to catch up with demand, many Fed officials now anticipate rates to be raised back to a neutral level of about 2% by the end of the year. To prevent inflation from being ingrained in consumer and corporate expectations, which may make it a more permanent component of the American economy, the objective is to bring down inflationary pressures.

The work ahead of us is challenging. In the past, the Federal Reserve has exacerbated recessions while attempting to bring rising inflation under control. Officials are restricting demand when the conflict in Ukraine is increasing uncertainty and threatening to keep gas and other commodities prices up, thus making the central bank’s work even more difficult.

Officials at the White House have been highlighting the role that the conflict is playing in raising inflation, and they have frequently blamed Russian President Vladimir V. Putin for the rise in prices. While Russia’s invasion resulted in a significant increase in gas prices last month, inflation had been high for several months before the conflict.

Some of the increase was fueled by increases in government spending. As households got stimulus checks and enhanced unemployment benefits in 2020 and 2021, they built up cash reserves, which enabled them to continue spending on items such as sofas, automobiles, and barbecues even as prices rose. Strong demand for commodities coincided with the closure of overseas plants and the overburdening of transportation infrastructure, resulting in shortages and price increases.

In order to fulfill increased consumer demand, firms are increasing wages as a result of the difficulty in hiring enough workers. Inflation, on the other hand, has grown more widespread. Separate statistics released on Friday indicated that a measure of employment expenses that the Federal Reserve regularly monitors increased by 1.4% in the first quarter of 2022, more than expected, while private-sector wages and salaries increased by 1.3% in the same period.

Some firms may be forced to raise their prices due to rising labor costs. It might also assist households in maintaining current expenditure levels.

According to the latest data released on Friday, consumption remained strong in March. Personal expenditure increased 1.1% before correcting for inflation and 0.2% after accounting for price hikes.

Despite continued wage growth and consumer spending, the Federal Reserve attempts to slow the economy to avoid widespread price pressures from getting entrenched in the economy. While policymakers still anticipate that price hikes will begin to decline in the near future, they are no longer wagering on or waiting for that result to occur.

“In the case of the United States, we had anticipated that inflation would peak around this time and then begin to decline,” Jerome H. Powell, chairman of the Federal Reserve, said at an event last week. “In the past, these expectations have proven to be unfulfilling.”

The picture for price increases in the months ahead is incredibly hazy at this time of year. Aside from pushing mortgage rates considerably up, the Fed’s interest rate shift has the potential to drag down the housing market and temper associated sorts of demand due to the Fed’s policy reversal. Already, certain firms, like the washing-machine manufacturer Whirlpool, are reporting a decline in customer demand compared to the previous year, albeit demand remains elevated compared to pre-pandemic levels.

However, the cost of essential inputs continues to rise. This is likely to continue as China closes down important cities to manage the coronavirus. The crisis in Ukraine puts further strain on some supply lines in the region.

Increased input costs force Whirlpool to raise pricing on its products, rising consumer prices.

As the company’s chief financial officer stated during a conference call on April 26, “historic inflation levels will impact us throughout the year,” he added that raw materials, energy, and logistics would be particularly hard hit. We are on target to fully offset cost increases as we close out the year, thanks to our previously stated price changes, which we will reveal in the near future.”

Before Russia invaded Ukraine and roiled commodities markets, many items were already battling to restore to normal inventory levels. Cars and trucks, for example, have remained in low supply due to a scarcity of vital components, the most critical of which are semiconductors. Ford executives stated last week that the business had 53,000 vehicles produced but that they were still awaiting chip integration.

“Customer demand is robust,” Jim Farley, the chairman and the executive officer of Ford, stated during an earnings conference call on April 27. “However, we are currently dealing with ongoing supply chain challenges, preventing us from achieving an even stronger quarter.”


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