WASHINGTON (AP) — Inflation soared over the past year at its fastest pace in more than 40 years, with costs for food, gasoline, housing and other necessities squeezing American consumers and wiping out the pay raises that many people have received.
The Labor Department said Tuesday that its consumer price index jumped 8.5% in March from 12 months earlier — the biggest year-over-year increase since December 1981. Prices have been driven up by bottlenecked supply chains, robust consumer demand and disruptions to global food and energy markets worsened by Russia’s war against Ukraine.
The government’s report also showed that inflation rose 1.2% from February to March, up from a 0.8% increase from January to February.
The March inflation numbers were the first to capture the full surge in gasoline prices that followed Russia’s invasion of Ukraine on Feb. 24. Moscow’s brutal attacks have triggered far-reaching Western sanctions against the Russian economy and have disrupted global food and energy markets. According to AAA, the average price of a gallon of gasoline — $4.10 — is up 43% from a year ago, though it has fallen back in the past couple of weeks.
The escalation of energy prices has led to higher transportation costs for the shipment of goods and components across the economy, which, in turn, has contributed to higher prices for consumers.
The latest evidence of accelerating prices will solidify expectations that the Federal Reserve will raise interest rates aggressively in the coming months to try to slow borrowing and spending and tame inflation. The financial markets now foresee much steeper rate hikes this year than Fed officials had signaled as recently as last month.
Even before Russia’s war further spurred price increases, robust consumer spending, steady pay raises and chronic supply shortages had sent U.S. consumer inflation to its highest level in four decades. In addition, housing costs, which make up about a third of the consumer price index, have escalated, a trend that seems unlikely to reverse anytime soon.
Economists point out that as the economy has emerged from the depths of the pandemic, consumers have been gradually broadening their spending beyond goods to include more services. A result is that high inflation, which at first had reflected mainly a shortage of goods — from cars and furniture to electronics and sports equipment — has been emerging in services, too, like travel, health care and entertainment.
The expected fast pace of the Fed’s rate increases will make loans sharply more expensive for consumers and businesses. Mortgage rates, in particular, though not directly influenced by the Fed, have rocketed higher in recent weeks, making home buying more expensive. Many economists say they worry that the Fed has waited too long to begin raising rates and might end up acting so aggressively as to trigger a recession.
West Virginia Senator Joe Manchin released a statement on the record-high inflation:
“Let me be clear, inflation is a tax and today’s historic inflation data tells another chilling story about how these taxes on Americans are completely out of control. Hard earned wages and financial savings are disappearing faster every month as prices continue to climb, while the pain and frustration of spending more on everyday items lingers over us all, especially among those who can afford it the least. Americans are seeing some of the largest increases in goods such as gas up 48%, beef up 16%, chicken and milk up 13%, and staples like coffee and eggs are up 11%.
“When will this end? It is a disservice to the American people to act as if inflation is a new phenomenon. The Federal Reserve and the Administration failed to act fast enough, and today’s data is a snapshot in time of the consequences being felt across the country. Instead of acting boldly, our elected leaders and the Federal Reserve continue to respond with half-measures and rhetorical failures searching for where to lay the blame. The American people deserve the truth about why record inflation is happening and what must be done to control it.
“Here is the truth, we cannot spend our way to a balanced, healthy economy and continue adding to our $30 trillion national debt. Getting inflation under control will require more aggressive action by a Federal Reserve that waited too long to act. It demands the Administration and Congress, Democrats and Republicans alike, support an all-the-above energy policy because that is the only way to bring down the high price of gas and energy while attacking climate change. The United States of America is equipped to be energy independent from Russia and other terror-sponsoring countries while also working to fight global climate change and break our dependence on the critical mineral supply change from China.
“The inflation number today is only the beginning unless we take immediate action to address the pain being felt across our nation. This is one problem facing the American people that one political party alone cannot fix. The American people cannot wait any longer.”Seantor Joe Manchin, April 12, 2022
For now, the economy as a whole remains solid, with unemployment near 50-year lows and job openings near record highs. Still, rocketing inflation, with its impact on Americans’ daily lives, is posing a political threat to President Joe Biden and his Democratic allies as they seek to keep control of Congress in November’s midterm elections.
Economists generally express doubt that even the sharp rate hikes that are expected from the Fed will manage to reduce inflation anywhere near the central bank’s 2% annual target by the end of this year. Tilley, Wilmington Trust economist, said he expects year-over-year consumer inflation to still be 4.5% by the end of 2020. Before Russia’s invasion of Ukraine, he had forecast a much lower 3% rate.
Inflation, which had been largely under control for four decades, began to accelerate last spring as the U.S. and global economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in the spring of 2020.
The recovery, fueled by huge infusions of government spending and super-low interest rates, caught businesses by surprise, forcing them to scramble to meet surging customer demand. Factories, ports and freight yards struggled to keep up, leading to chronic shipping delays and price spikes.
Critics also blame, in part, the Biden administration’s $1.9 trillion March 2021 stimulus program, which included $1,400 relief checks for most households, for helping overheat an already sizzling economy.
Many Americans have been receiving pay increases, but the pace of inflation has more than wiped out those gains for most people. In February, after accounting for inflation, average hourly wages fell 2.5% from a year earlier. It was the 11th straight monthly drop in inflation-adjusted wages.