Inflation rises to 7.9% in February 2022

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Prices soared at the fastest rate in decades in the month leading up to the war in Ukraine, underscoring the high stakes facing the United States – as well as many developed economies – as the conflict promises to do drive up costs.

The consumer price index rose 7.9% through February, the fastest annual inflation rate in 40 years. Rising food and rent prices contributed to the sharp rise, the Bureau of Labor Statistics said, as did an incipient spike in gasoline prices that will become more pronounced in the March inflation report.

The February report took just the start of the gas price spike that came in response to Russia’s invasion of Ukraine late last month. Economists expect inflation to rise even further in March as pump prices have since jumped to record highs. The average price of a gallon of gasoline was $4.32 on Thursday, according to AAA.

Rapidly rising costs are hitting consumers in the wallet, causing confidence to plummet and stretching household budgets. Rising wages and accumulated savings during the pandemic have helped many families continue to spend despite rising prices, but the burden falls heaviest on low-income households, which spend a large portion of their budget on daily necessities that quickly become more expensive.

Soaring prices present a challenge for President Biden, especially as November’s midterm elections are fast approaching. Democrats will have to fight to retain control of Congress at a time when voters are feeling the pressure of higher spending. Mr Biden on Thursday acknowledged the pain consumers are feeling from rapid inflation, but pointed the finger at President Vladimir V. Putin, blaming his invasion of Ukraine for fueling rising oil prices. gasoline. Democrats tweeted about the report on Thursday using the hashtag #PutinPriceHike.

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by rising prices and that families are beginning to feel the pinch of Putin’s price hike,” Mr. Biden in a statement. “As I have said all along, there will be costs on us if we impose crippling sanctions in response to Putin’s unprovoked war, but Americans can know this: the costs we impose on Putin and his cronies are far more devastating than the costs we face.”

The invasion of Ukraine has aggravated a stubborn inflation problem. Cost increases had been rapid for a year and accelerating for months, posing a problem for the Federal Reserve, which is charged with ensuring price stability. The central bank has announced it will raise interest rates by a quarter of a percentage point at its meeting next week, likely the first in a series of measures designed to raise the cost of borrowing and spending and slow down the economy. By reducing consumption and slowing the labor market, the Fed is able to reduce pressure on inflation over time.

Widening price pressures and high gas costs could become a serious problem for central bank policymakers if they help convince consumers that the price spike will last. If people start anticipating inflation, they can change their behavior in ways that make it more permanent: accept price increases more readily and demand larger increases to keep pace.

“That was another bad report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “Inflation was already far too high before the invasion of Ukraine.”

While the February report picked up gas prices only days after the invasion, the increase in fuel accounted for about a third of the rise in the price index, the government said. Omair Sharif, founder of Inflation Insights, said he expects inflation to rise to 8.3% in March as pump prices soar.

The gas shock is just the latest example in which what can go wrong seems to go wrong when it comes to price.

Rapid inflation began to kick in early last year, and many forecasters initially predicted it would subside by the end of 2021 as the economy reopens from the pandemic and conditions would return to normal.

Instead, turmoil in supply chains has been met with strong consumer demand for goods, and price increases have accelerated. Now, it’s hard to guess how quickly and how much prices will moderate in 2022, as overseas conflicts threaten to keep shipping lanes tangled and coins scarce. Ukraine is a major producer of neon, which could keep computer chips in short supply, perpetuating the shortages that have plagued automakers. Higher energy costs could spill over to other industries.

Even without further supply chain issues, there are signs that inflation is widening beyond a few pandemic-hit sectors, an indication that they may last as the latest virus surge wanes. . The rent for main residences, for example, increased by 0.6% compared to the previous month – the fastest monthly rate growth since 1999.

Price increases have been rapid in much of the world, forcing many central banks to cut back on the aid they provide to their economies. The European Central Bank decided on Thursday to accelerate its exit from its bond-buying program as it tries to counter rising inflation. Europe’s efforts to end its energy dependence on Russia promise to drive up costs at a time when inflation is already near triple the central bank’s target.

In the United States, there are still signs that price increases will slow its year. Starting in March, the data will be compared to the relatively high readings of last year, which should mechanically start to push the year-over-year measure down. But it’s unclear when inflation will ease back to the Fed’s 2% inflation target. The central bank defines this objective using a separate inflation indexbut which is also on the rise considerably.

Rapid price increases have caused some people to adjust their lifestyles. Timothy Gutbrod, who previously worked as a theater actor, has been a driving instructor in Albany, NY, since March 2020, and the job earns him just over $30,000 a year. As higher gas prices made commuting and daily shopping more expensive, he ate less in restaurants.

For someone who was a lifelong Manhattanite, it’s a real loss, said Gutbrod, 61. He used to enjoy three brunches or dinners at the restaurant each week. Now it’s more like one every two weeks.

“I used to go for relaxing rides,” he said, but now the rides are unaffordable. “I have a small budget and I work quite hard. For someone who doesn’t make a lot of money, you have to be smart and start taking shortcuts.

As it disrupts daily life, inflation is likely to catch up with Democrats and the administration as they fight to retain control of Congress in November. Despite plentiful jobs and rapidly rising wages, consumer confidence has fallen to its lowest lowest level since summer 2011, when the economy was recovering from the global financial crisis and Congress was bickering over raising the national debt ceiling.

This probably reflects, at least in part, the reality that wages do not quite keep up with inflation for the typical worker, and consumers paying more at the pump, which tends to be a very significant cost to Americans.

In February, the cost of food increased, which is also difficult for consumers on tight budgets. Over the past year, food prices have risen 8.6%, the largest annual increase since the period ending in April 1981. Fresh fruit and dairy products became significantly more expensive last month .

The White House has stressed that it is trying to offset rising costs as much as possible.

“We have taken steps to address the bottlenecks in the supply chain, to reduce those bottlenecks,” Jen Psaki, the White House press secretary, said this week.

But those changes mostly helped around the edges, and with prices showing few signs of moderating on their own, Fed officials agreed they will need to use their policies to cool demand and prevent rapid inflation. of today to take root. . This could limit the central bank’s room to react to any slowdown in growth caused by uncertainty and high gas prices.

“They need to stay on track,” Ms Rosner-Warburton said. “They don’t have as much leeway to react to those risks, given the high inflation.”

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