US consumer prices accelerate in February; weekly jobless claims rise

[WASHINGTON] US consumer prices surged in February, culminating in the largest annual increase in 40 years, and inflation is poised to accelerate further in the months ahead as Russia's war against Ukraine drives up the costs of crude oil and other commodities.

The consumer price index (CPI) increased 0.8 per cent last month after gaining 0.6 per cent in January, the Labor Department said on Thursday (Mar 10).

In the 12 months till February, the CPI shot up 7.9 per cent, the biggest year-on-year increase since January 1982. That followed a 7.5 per cent jump in January and was the fifth straight month of annual CPI readings north of 6 per cent.

Economists polled by Reuters had forecast the CPI rising 0.8 per cent and vaulting 7.9 per cent on a year-on-year basis.

Inflation has way overshot the Federal Reserve's 2.0 per cent target. The US central bank is expected to start raising interest rates next Wednesday to stamp out inflation, with economists expecting as many as 7 rate hikes this year.

Last month's CPI data does not fully capture the spike in oil prices following Russia's invasion of Ukraine on Feb 24.

Prices shot up more than 30 per cent, with global benchmark Brent hitting a 2008 high at US$139 a barrel, before retreating on Wednesday after reports that the United Arab Emirates would call on fellow Organization of the Petroleum Exporting Countries (Opec) members to boost production.

The United States and its allies have imposed harsh sanctions on Moscow, with President Joe Biden on Tuesday banning imports of Russian oil into the country. Russia is the world's second-largest crude oil exporter.

Petrol prices in the US are averaging a record US$4.318 per gallon compared with US$3.469 a month ago, AAA data showed.

According to David Kelly, chief global strategist at JPMorgan Funds in New York, if petrol averaged close to US$4.20 for the year, that would add over US$1,000 to the expenses of the average household. The Russia-Ukraine war, which has also boosted prices of wheat and other commodities, is seen keeping inflation uncomfortably high into the second quarter.

"Our estimates suggest gasoline and natural gas prices are on track to add over 1 full percentage point or so to overall year-on-year prints in each month over the next 10 months,"said Kevin Cummins, chief US economist at NatWest Markets in Stamford, Connecticut.

Lower income households bear the brunt of high inflation as they spend more of their income on food and petrol.

Inflation was already a problem before the Russia-Ukraine war, thanks to a shift in spending to goods from services during the Covid-19 pandemic. Trillions of dollars in pandemic relief fired up spending, which ran against capacity constraints as the coronavirus upended the labour market dynamics.

Excluding the volatile food and energy components, the CPI increased 0.5 per cent last month after advancing 0.6 per cent in January.

In the 12 months till February, the so-called core CPI raced up 6.4 per cent. That was the largest year-on-year gain since August 1982 and followed a 6.0 per cent increase in January.

Rising rentals and shortages of goods like motor vehicles are fuelling the core CPI. Sharply declining coronavirus infections are also seen boosting demand for services including air travel and hotel accommodation, keeping inflation hot.

Before the Russia-Ukraine war, most economists had expected the annual core CPI rate to peak in March just above 6.5 per cent and retreating in April as large increases from last spring started to drop out of the calculation.

"We still think that is the most likely outcome, but there is a risk that energy pass-through effects from the latest spike in oil prices will slow that process," said Lou Crandall, chief economist at Wrightson ICAP in Jersey City.

"Exactly how the Fed will balance the impact of higher oil prices on the inflation data against the 'energy tax' hit to incomes and real spending remains unclear."

Tightening labour market conditions will also contribute to higher inflation, despite monthly wage growth stalling in February. There were a near record 11.3 million job openings at the end of January. The jobs-workers gap was 4.8 million, accounting for 2.9 per cent of the labour force.

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 11,000 to a seasonally adjusted 227,000 for the week ended Mar 5, still at levels consistent with a tight labour market.

Economists had forecast 217,000 applications for the latest week. Claims have dropped from a record high of 6.149 million in early April of 2020. REUTERS