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US inflation jumped 8.5% in past year, highest since 1981

US inflation jumped 8.5% in past year, highest since 1981

Washington (AFP) – Inflation rose over the past year at its fastest pace in more than 40 years, as costs of food, gasoline, housing and other necessities put pressure on American consumers and wiped out the wage increases many people took.

The Labor Department said Tuesday that its consumer price index jumped 8.5% in March from 12 months earlier, the largest year-over-year increase since 1981. Prices have been rising due to throttling supply chains, strong consumer demand, and global food and nutrition turmoil. Energy markets worsened due to Russia’s war against Ukraine. In the February-March period, inflation rose 1.2%, the largest monthly jump since 2005. Gasoline prices led more than half of that increase.

Throughout the economy, annual price hikes were widespread. Gasoline prices have jumped 48% in the past 12 months. Used car prices are up 35%, although they actually fell in February and March. Bedroom furniture rose 14.7% and men’s suits and coats increased 14.5%. Grocery prices jumped 10%, including an 18% increase for both bacon and oranges.

Investors focused on a bright spot in the report and sent stock prices higher: So-called core inflation, which excludes volatile food and energy prices, rose just 0.3% from February to March, the smallest monthly rise since September. Over the past year, core prices have risen 6.5%, the highest since 1982.

“The inflationary fire is still out of control,” said Christopher Robke, chief economist at research firm FWDBONDS LLC.

The March inflation figures were the first to fully reflect the rise in gasoline prices that followed the Russian invasion of Ukraine on February 24. The Moscow attacks triggered far-reaching Western sanctions on the Russian economy and disrupted food and energy markets. According to AAA, the average price of a gallon of gasoline — $4.10 — is up 43% from a year ago, despite falling in the past two weeks.

The acceleration of inflation has occurred on the back of a booming labor market and strong macroeconomics. In March, employers added 431,000 jobs – the eleventh consecutive month in which they added at least 400,000 jobs. In 2021, they added 6.7 million jobs, the most in any year. Additionally, job opportunities are near record levels, layoffs are at their lowest level since 1968, and the unemployment rate is just above a half-century low.

Rising energy prices, a potential threat to the economy’s long-term viability, have raised transportation costs to ship goods through the economy, which in turn has contributed to higher prices for consumers. The pressure is especially felt in the gas pump.

“That’s an extra dollar a gallon that I pay to get into town to work,” said Jason Emerson of Oakland, California, as he puts groceries in his car. “And then, you know, we have the fees that just went up last year by a dollar. My eggs are a dollar more as well. So everything goes up by at least a dollar, which, you know, adds.”

The latest inflation numbers reinforce expectations that the Federal Reserve will raise interest rates aggressively in the coming months in an effort to slow borrowing and spending and tame inflation.

Kathy Bostancik, an economist at Oxford Economics, said she expects year-on-year inflation to hit 9% in May and then start a “slow decline”. Some other economists, too, suggest that inflation has reached or near its peak. With federal stimulus assistance expiring, consumer demand could deteriorate as wages lag behind inflation, households drain more of their savings and the Federal Reserve raises rates sharply, all of which could combine to slow inflation.

But that may take time. Strong spending, steady wage increases and chronic supply shortages continue to fuel inflation. In addition, housing costs, which make up about a third of the CPI, have risen, a trend that seems unlikely to reverse anytime soon.

Economists note that as the economy emerges from the depths of the pandemic, consumers have gradually expanded their spending beyond goods to include more services. The result is that high inflation, which initially reflected a shortage of goods — from cars and furniture to electronics and sporting equipment — appeared in services as well, such as travel, health care and entertainment. Airline ticket prices, for example, have increased at a rate of nearly 24% in the past 12 months. The average cost of a hotel room increased by 29%.

The expected rapid pace of interest rate increases from the Fed will make loans sharply more expensive for consumers and businesses. Mortgage rates, in particular, although not directly affected by the Federal Reserve, have risen in recent weeks, making home buying more expensive. Many economists say they worry that the Fed has waited too long to start raising interest rates and may end up acting so aggressively that it triggers a recession.

American public expectation of inflation Over the next 12 months, it reached its highest level – 6.6% – in a New York Fed survey since 2013. Once public expectations of inflation rise, they can make themselves good: Workers typically demand higher salaries to offset their expectations of higher prices. Firms, in turn, raise prices to cover higher labor costs. This could lead to a wage-price spiral, something the nation last experienced in the late 1960s and 1970s.

Inflation, which had been largely under control for four decades, began accelerating last spring as the US and global economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in the spring of 2020.

Many Americans receive wage increases, but inflation has wiped out those gains for most people. In February, after accounting for inflation, average hourly wages were down 2.7% from the previous year. This was the 12th consecutive monthly decline in inflation-adjusted wages.

However, for the time being, with the labor market improving, inflation still has to dampen overall consumer spending. For example, Levi Strauss & Co. says. The high prices do not seem to bother their customers.

However, Adrian Mitchell, Macy’s chief financial officer, cautions, that chronic high inflation is likely to lead to consumers choosing: they may spend less on supermarket goods and more on services like travel and dinner.

“We think the consumer is going to spend,” Mitchell said. “But are they going to spend on discretionary items we sell, or are they going to spend on a plane ticket to Florida or air travel or going to restaurants more?”

In Atlanta, Shirley Hughes has had to raise prices at her bakery, Sweet Cheats, due to rising costs for items like eggs and milk. Two years ago, a 36-pound container of butter cost $75. Now, $145. Thirty dozen eggs were $50. Now, they’re $75—and even that price is only possible if Hughes picks them himself, rather than handing them over. She raised the price of her six-inch cake by $5 to $50.

So far, she said, people have generally accepted their higher prices. But there are limits. One customer wanted to deliver a six-inch cake to her boyfriend – an hour’s drive away. Hughes told her that it would cost nearly $200 to make and serve the cake.

Customer canceled.


D’Innocenzio and Anderson report from New York. Associated Press photojournalist Terence Shea in Oakland, California contributed to this report.

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