U.S. inflation jumped 8.5 per cent in past year, highest since 1981

WASHINGTON

Inflation rose at an alarming rate over the past year, surpassing 40-years of steady growth. The rising costs of food, gasoline, and other necessities have squeezed American consumers and wiped out the many pay raises that many have received.

Tuesday’s Labour Department announcement stated that its consumer price index rose 8.5% from 12 months prior to March, marking the biggest year-overyear increase since 1981. Prices have been driven up due to bottlenecked supply chains and strong consumer demand. Also, disruptions in global food and energy markets that were worsened as a result of Russia’s war on Ukraine have contributed to increased prices. The largest month-tomonth jump in inflation since 2005 was 1.2% between February and March. This was more than half the increase in gasoline prices.

All across the economy, year-over–year price spikes were common. In the past 12 months, gasoline prices have risen 48%. Although used car prices have risen 35% in the past 12 months, they actually fell in March and February. Bedroom furniture is up 14.7% and men’s suits & coats 14.5%. Groceries prices have risen 10% including 18% for oranges and bacon.

Investors focused on one bright spot in the report, and stock prices rose: So-called core inflation (which excludes volatile food prices and energy prices) rose 0.3% between February and March, the smallest monthly increase since September. However, core prices have risen 6.5% over the past year, which is the largest increase since 1982.

“The inflation fire is still out of control,”Christopher Rupkey is chief economist at FWDBONDS LLC.

The March inflation numbers were the first to capture the spike in gasoline prices following Russia’s invasion on February 24. Moscow’s attacks have led to severe Western sanctions against Russia, disrupting food and energy markets, and triggering Western sanctions. AAA states that the average price of a gallon (US$4.10) of gasoline has increased 43% since a year ago. However it has slowed in the past few weeks.

The backdrop of a booming economy and a growing job market has accelerated inflation. Employers added a solid 431,000 jobs in March — the 11th consecutive month of adding at least 400,000 jobs. They added 6.7 millions jobs in 2021, which is the most ever recorded year. Job openings are at record levels, layoffs have fallen to their lowest point since 1968, and the unemployment rate has fallen to a mere 5%.

The potential threat to long-term economic durability is the escalating energy prices. This has caused higher transportation costs to ship goods around the country, which has in turn led to higher prices to consumers. The gas pump is feeling the pinch most.

“That’s an extra dollar per gallon that I’m paying to get into the city to work,”Jason Emerson from Oakland, California said it as he loaded groceries into the car. “And then, you know, we have the tolls that just went up this past year a dollar. My eggs are a dollar more as well. So everything’s going up at least a dollar, which, you know, adds up.”

The Federal Reserve is expected to raise interest rates aggressively over the next few months to slow borrowing and spending, and to control inflation.

Kathy Bostjancic of Oxford Economics said that she expects year over-year inflation to reach 9% in May. Then, she believes it will begin to fall. “a slow descent.”Other economists also believe that inflation is near or at its peak. Consumer demand could drop as wages fall behind inflation, households withdraw more of their savings, and the Fed raises rates sharply. All of these factors could contribute to slowing inflation.

But this could take some time. Inflation is still being driven by persistent supply shortages, robust spending, and steady pay increases. Additionally, housing costs have increased by about a quarter of the consumer price index. This trend is unlikely to change anytime soon.

Economists have noticed that consumers are gradually expanding their spending beyond just goods as the economy emerges from the depths after the pandemic. High inflation, which initially reflected a shortage of goods, such as cars and furniture, has now been reflected in services like travel, healthcare, and entertainment. For example, the average price of an airline ticket has risen by nearly 24% over the past 12 month. The average hotel room cost has risen 29%

Consumers and businesses will find loans much more expensive due to the Fed’s expected rapid rate of rate increases. The Fed has not had an impact on mortgage rates. However, they have seen mortgage rates rise in recent weeks. This has made home buying more expensive. Many economists worry that the Fed has waited too much to raise rates and may end up acting so aggressively that it triggers a recession.

In a survey that the Federal Reserve Bank of New York conducted in 2013, the American public’s expectations for inflation have reached their highest point of 6.6%. This is the highest level of inflation the bank has measured since 2013. If inflation expectations rise, they can become self-fulfilling. For example, workers will often demand higher wages to offset their inflation expectations. To cover higher labor costs, businesses raise prices. This can lead to a wage-price spiral that the nation experienced in the 1970s and 1980s.

After being under control for 40 years, inflation began to rise last spring after the U.S. economy and global economies recovered with surprising speed and strength from the devastating coronavirus recession which began in spring 2020.

While many Americans have received pay increases, inflation has more than offset those gains. After accounting for inflation, the average hourly wage fell 2.7% in February compared to a year ago. It was the 12th consecutive monthly decrease in inflation-adjusted earnings.

For now, however, inflation has not slowed consumer spending, despite the strong job market. Levi Strauss & Co., for example, says its price increases don’t seem to have fazed its customers.

Adrian Mitchell, chief financial officers at Macy’s, warns that consumers will be more choosy if there is a high level of inflation. They may spend less on goods from department stores and more on services such as travel and dining out.

“We do believe that the consumer is going to be spending,”Mitchell said. “But are they going to be spending on discretionary items that we sell, or are they going to be spending on an airline ticket to Florida or air travel or going out to restaurants more?”

Shirley Hughes, a Atlanta-based baker, has had to raise her prices due to rising costs for milk and eggs. A 36-pound container butter was $75 two years ago. Now, it’s $145. Thirty-two eggs were $50. They now cost $75, and Hughes must pick them up herself rather than having them delivered. She has raised the price of her 6-inch cake by $5 to $50.

She said that people have accepted her higher prices so far. There are limits. One customer needed a six-inch cake delivered to her boyfriend, who lives an hour away. Hughes informed her that the cost of baking and delivering the cake would be close to $200.

The customer has cancelled.

——

Anderson and D’Innocenzio were reporting from New York. This report was contributed to by Terence Chea, AP video journalist, Oakland, California.