Inflation in the United States reached a 41-year high of 8.4% in the year to the end of March. It is the greatest inflation rate increase in the United States since December 1981. In March, the US consumer price index increased by 1.2 percent over February. This 1.2 percent increase is the greatest month-to-month increase since 2005. The government data was released by the US government on Tuesday.
The main cause of high inflation rates has been skyrocketing gas prices. Inflation in the United States reached a record high in March, partly due to increasing housing and food prices.
Gas prices in the United States have risen significantly since Russia invaded Ukraine and western countries imposed sanctions on the Russian government. The national average daily gas price in the United States had previously reached a record high of $4.11 per gallon, though it has since dropped.
High gas prices have increased the cost of transporting products, causing inflation to rise even faster. The ongoing Russia-Ukraine situation, according to Luke Tilley, chief economist of Wilmington Trust, has worsened inflation.
Inflation is expected to be a big political setback for US President Joe Biden and his administration ahead of the midterm elections in November. The Biden administration is attempting to maintain control of Congress in the polls, but rising prices, which have caused great difficulties for Americans, may jeopardize their electoral objectives.
It’s worth noting that this is the second straight record-breaking inflation rate, as February’s figure was likewise a 40-year high year-on-year increase. The rise from February 2021 to February 2022 was 7.9%.
However, the US economy as a whole is holding up well, with record-high job openings and a 50-year low unemployment rate. According to some economists, whereas February was once predicted to be high for US inflation, readings are now expected to rise to above 8%. Due to the Ukraine conflict and Biden’s restriction on Russian energy imports, oil supplies have been tightened, causing retail gasoline and other commodity prices in the United States to hit new highs this month.
The geopolitical environment makes the central bank’s rate hike cycle in the coming year more unpredictable. If energy shocks lead to higher and more persistent inflation, Fed officials may become more hawkish, but if sinking consumer sentiment and declining real wages begin to weigh on GDP as the war drags on, they may become more cautious.
Gas prices rose 6.6% from the previous month, accounting for over a third of the monthly increase, according to February CPI statistics. Some of this could be due to energy price spikes in the aftermath of Russia’s invasion in the last week of the month. In the March CPI data, the impact will be more completely captured.
According to figures from the American Automobile Association, the retail price of regular-grade gasoline has risen 19.3% this month to $4.32 per gallon.
According to the CPI report, food prices increased by 1% over the previous month, the highest increase since April 2020. The increase of 7.9% over February of last year was the most since 1981.
Inflation Real Earnings
Wage increases haven’t kept up with inflation as a result of the tight job market. Separate data released Thursday showed that inflation-adjusted average hourly earnings dropped 2.6% in February from a year earlier, the sharpest drop since May and the 11th successive drop.
According to the survey, merchandise prices continued to rise in February, while annual growth in service expenses accelerated. Goods inflation increased by 13% year over year, the highest rate since 1980. This included the largest annual increase in new car and truck prices ever.
Costs of services increased by 4.8% a year ago, the biggest increase since 1991.