WHITE HOUSE, WASHINGTON (AP) — Consumer inflation increased 7.9 percent over the last year, the largest increase since 1982 and presumably a precursor to significantly higher prices to come.
The Labor Department announced Thursday that the increase covered the 12 months ended in February and excluded the spikes in oil and gas prices that followed Russia’s invasion of Ukraine on Feb. 24. Since then, AAA reports that national average gas prices have increased by around 62 cents a gallon to $4.32.
Even before the war spurred price increases, robust consumer spending, healthy wage increases, and persistent supply shortages had pushed inflation in the United States to its highest level in four decades. Additionally, housing costs have grown substantially, accounting for roughly a third of the government’s consumer price index, a trend that is unlikely to change very soon.
“The numbers are staggering, and there is more to come,” said Eric Winograd, senior economist at AllianceBernstein asset management. “The inflation peak will be substantially higher than previously anticipated and will occur much later than previously anticipated.”
According to the government’s data released Thursday, inflation increased by 0.8 percent from January to February, up from a 0.6 percent increase in December to January. Without volatile food and energy costs, so-called core prices increased by a sharp 0.5 percent month over month and by 6.4 percent year over year. Economists frequently track core prices because they more accurately reflect long-term inflation trends.
For the majority of Americans, inflation is outpacing the salary raises they received in the last year, making it more difficult to purchase necessities like food, petrol, and rent. As a result, as the midterm elections approach, inflation has emerged as the primary political threat to President Joe Biden and congressional Democrats. According to polls, it is also the major economic issue of small business owners.
The Federal Reserve is expected to raise interest rates multiple times this year, beginning with a quarter-point increase next week. The Fed, however, faces a difficult task: if it restricts lending too forcefully this year, it risks undermining the economy and possibly precipitating a recession.
Between January and February, almost every category of goods and services increased in price. Grocery prices increased by 1.4 percent, the most significant one-month increase since 1990, except for a pandemic-induced price spike two years ago. The price of fruits and vegetables as a group increased by 2.3 percent, the highest monthly increase since 2010. Gas prices increased by 6.6%, while clothing costs increased by 0.7%.
The government said that supermarket prices increased 8.6 percent year over year in the 12 months ended in February, the largest annual increase since 1981. Gas prices have increased by an astounding 38%. And housing costs have increased by 4.7 percent, the highest annual increase since 1991.
Lydia Boussour, an economist at Oxford Economics, predicts that if oil stays at $120 a barrel for the remainder of the year — a price it briefly reached Tuesday before sliding — it will cost average American households $1,500. Additionally, she warned, it will decrease economic growth by around 0.8 percentage point this year. Numerous economists have revised their GDP forecasts downward by nearly a half-point to around 2.5 percent for 2022.
Individual Americans and businesses alike are grappling with the inflation increase and attempting to mitigate its effects.
“Gas costs are skyrocketing, especially with spring break approaching for the kids,” Vikas Grover said Monday as he filled up his car in Herndon, Virginia. “It will undoubtedly increase our overall budget significantly.”
Maurice Brewster, the founder of Mosaic Global Transportation in San Jose, California, a limousine and transportation firm with roughly 100 vehicles, has been hit hard by rising gas prices. Brewster was paying $4 per gallon just a few months ago. The price was $6.39 on Monday.
“Inflation has been a lethal weapon,” he explained. “I am aware of it on a daily basis.”
Brewster’s primary source of revenue is employee transportation from San Francisco to Silicon Valley corporations such as Google, Meta (previously known as Facebook), and Merck. Gas expenses are already included in those contracts, and Brewster is now passing along the increased costs.
Brewster also hires limousines to consumers for weddings, wine tours, and other occasions, a business that has exploded in popularity as licencing rules have been relaxed. He intends to impose a 10% gasoline tax on consumer rentals and is praying that his consumers would bear the cost.
“I’m anticipating that it will not deter people from getting out and enjoying themselves,” he said. “I hope I’m not mistaken.”
Energy costs, which spiked following Russia’s invasion of Ukraine, increased again this week after Biden announced the US would prohibit Russia from importing oil. Wednesday’s decline in oil prices was attributed to rumours that the United Arab Emirates may persuade other OPEC members to increase supply. However, they got to their feet again on Thursday.
The Biden White House has attributed a large portion of the inflation increase on a few corporate titans’ ability to dominate industries and stifle competition that would otherwise cut costs. The administration says that meat prices, for example, are higher because the industry is dominated by four meatpacking companies.
In his State of the Union address last week, Biden said that the United States should produce more items domestically rather than exporting them to avoid the supply chain breakdowns plaguing many businesses. However, increasing competition or domestic production would take time and would not result in a reduction in inflation any time soon.
Republicans in Congress and a large number of economists argue that the Biden administration’s $1.9 trillion financial rescue package, which distributed stimulus checks and enhanced unemployment benefits to tens of millions of households following the pandemic, accelerated consumer spending and contributed to high inflation.
The economic implications of Russia’s war have upended a widely held belief among many economists and at the Federal Reserve: that inflation would begin to ease this spring as a result of prices rising so rapidly in March and April 2021 that comparisons to a year earlier would show decreases. That is unlikely to occur. If gas prices remain stable, Winograd thinks that inflation might reach as high as 9% in March or April.
According to Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, a crucial concern in the coming months will be whether increasing petroleum prices percolate into the broader economy via escalating costs for commodities like shipping and plane tickets. Such rises in core prices typically take longer to subside than variable energy costs.
Slower growth presents a unique issue for the Fed, as it occurs at a time when increased gasoline costs are also increasing inflation. This tendency is comparable to the “stagflation” dynamic that wreaked havoc on the economy in the 1970s for many Americans.
However, the majority of experts believe the US economy is growing rapidly enough that another recession is improbable.