Consumer inflation rose 7.9% in the past year due to rising costs of gas, food, and housing. This is the highest increase since 1982, and likely a sign of higher prices ahead.
Thursday’s increase by the Labor Department reflected the 12 months ending February. It did not include oil and gas price spikes that occurred following Russia’s invasion Ukraine on February 24. According to AAA, national average gas prices have increased by 62 cents per gallon to $4.32 since then.
The war had further accelerated the rise in prices, but robust consumer spending, strong pay raises, and persistent supply shortages led to U.S. inflation reaching its highest point in over 40 years. Furthermore, the housing cost index which accounts for about a third, has risen rapidly, a trend that is unlikely to change anytime soon.
Eric Winograd (senior economist at AllianceBernstein), stated that the numbers are “eye-watering” and that there is still more to come. “The peak inflation will occur later than expected and will be higher than originally thought.”
Thursday’s government report showed that inflation increased 0.8% from January to February. This is an increase of 0.6% from December to January. Core prices, which exclude volatile food and energy categories, rose by 0.5% and 6.4% respectively from a year ago. Core prices are more closely related to longer-term inflation trends, so economists prefer to monitor them.
Inflation is a major problem for most Americans. It’s running ahead of many Americans’ pay increases in the last year. This makes it more difficult to afford basic necessities such as food, gas, and rent. As the midterm elections approach, President Joe Biden’s top political threat is inflation. In surveys, small business owners also stated that inflation is their main economic concern.
The Federal Reserve will raise interest rates multiple times this year to stop the inflation surge. First, a quarter-point increase next week . However, the Fed faces a delicate task: If it increases credit too aggressively in this year’s fiscal year, it could cause economic collapse and even trigger a recession.
Nearly all categories of goods and services saw a rise in prices between January and February. Groceries prices rose 1.4% in January, the largest one-month price increase since 1990. This was not due to a pandemic-induced price rise two years ago. The monthly average increase in the price of fruits and veggies was 2.3%. This is the highest monthly increase since 2010. Clothing prices rose 0.7%, while gas prices jumped 6.6%
The government reported that grocery prices rose 8.6% in the 12 months ended February. This is the largest year-over-year rise since 1981. The gas prices have risen by 38%. Housing costs have increased 4.7% annually, which is the highest annual jump since 1991.
Oxford Economics economist Lydia Boussour estimates that oil at $120 per barrel would continue for the remainder of this year, which it did on Tuesday, before falling, and it would cost American households an average $1,500. She also said that it would reduce economic growth by around 0.8 percent this year. Many economists have reduced their growth estimates for 2022 to 2.5% by about a half-point.
Individual Americans and companies across the country are dealing with the rising inflation rate. They’re trying to reduce its impact.
Vikas Grover, filling up his car in Herndon on Monday, said that gas prices were high, especially when spring vacation is approaching for the children. It definitely makes our overall budget much more expensive.”
Maurice Brewster, founder of Mosaic Global Transportation in San Jose, California has been hit hard by rising gas prices. He is a limousine- and transportation company with over 100 vehicles. Brewster was paying $4 per gallon a few months back. The price was $6.39 on Monday.
He said, “Inflation is a killer.” It is something I feel every day.
Brewster’s main business is moving workers from San Francisco to Silicon Valley companies such as Google, Meta (previously known as Facebook), and Merck. Brewster is passing on higher gas prices because of the fact that gas costs are included in these contracts.
Brewster also rents limousines to customers for weddings, wine tours, and other functions. This business has seen a boom as the pandemic restrictions have eased. Brewster plans to increase the fuel surcharge by 10% for consumer rentals, and he is hoping that his customers will be able to pay it.
He said, “I am anticipating that they will still want to get out and have a great time.” “I hope that I am not wrong.”
After Russia’s invasion, energy prices rose again after Biden declared that the United States would ban oil imports from Russia. According to reports, the United Arab Emirates would urge other OPEC members for increased production, oil prices fell Wednesday. They rose once again on Thursday.
The Biden White House believes that much of the inflation surge can be attributed to the power of a few corporate giants, who have the ability to dominate certain industries and eliminate competition that would otherwise drive down prices. For example, meat prices are higher because four meat-packing companies own the industry.
Biden stated that the U.S. should produce more goods at home to avoid the supply chain backlogs that plague many companies in his State of the Union address last Wednesday. But producing more domestic competition or home-grown goods would take time, and it wouldn’t slow down inflation.
Many economists and Republicans in Congress agree that the $1.9 trillion Biden Administration’s financial rescue package (which distributed stimulus checks and increased unemployment benefits to tens to millions of households following the pandemic) contributed to high inflation through accelerating consumer spending.
Many economists and the Fed were wrong to assume that inflation would ease this spring, as prices rose so dramatically in March and April 2021 that they would be able to compare them to last year. This is unlikely to happen. Winograd predicts that inflation could rise to 9% in March and April if gas prices stay at their current levels.
MacroPolicy Perspectives senior economist Laura Rosner-Warburton suggested that the key question for the coming months is whether higher gas prices seep into other areas of the economy through escalating shipping costs and airfare tickets. These core price increases are more difficult to erase than volatile energy prices.
The Fed faces a difficult task in slowing growth, as it occurs at a time when higher gasoline prices are also raising inflation. This is similar to the “stagflation” dynamic that caused many Americans to lose their jobs in the 1970s.
However, most economists believe that the U.S. economy has grown strongly enough to prevent another recession.
