US inflation quickens to 8.5%, ratcheting up pressure on Fed
Washington
US CONSUMER prices rose in March by the most since late 1981, bolstering expectations that the Federal Reserve will raise interest rates by half a point next month.
The consumer price index (CPI) increased 8.5 per cent from a year earlier following a 7.9 per cent annual gain in February, Labor Department data showed on Tuesday (Apr 12). The widely followed inflation gauge rose 1.2 per cent from a month earlier, the biggest gain since 2005. Petrol costs drove half of the monthly increase.
Economists in a Bloomberg survey called for the overall CPI to increase 8.4 per cent from a year ago and 1.2 per cent from February.
The March CPI reading represents what many economists expect to be the peak of the current inflationary period, capturing the impact of soaring food and energy prices after Russia's invasion of Ukraine. While the Fed is shifting as such to a more hawkish policy, inflation isn't likely to recede to the central bank's 2 per cent goal anytime soon - especially given the war, Covid-19 lockdowns in China and greater demand for services like travel.
At the same time, risks that inflation will tip the economy into recession are building. A growing chorus of economists predict that activity will contract either because consumer spending declines in response to higher prices, or the Fed will over-correct in its effort to catch up. However, the majority still expects the economy to grow.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Excluding volatile food and energy components, so-called core prices increased 0.3 per cent from a month earlier and 6.5 per cent from a year ago, both less than projected and due in large part to the biggest drop in used vehicle prices since 1969.
On a year-over-year basis, goods inflation excluding food, energy and used vehicles rose 8.1 per cent in March, the most since 1981.
Services costs increased 5.1 per cent from a year ago, the biggest advance since 1991. Airline fares rose a record 10.7 per cent in March from a month earlier.
The war in Ukraine, which started in late February, led to a spike in energy prices on fears that cutting off Russian oil and gas would stretch already-tight supply.
The CPI report showed that energy prices rose 11 per cent in March from the prior month, the most since 2005, while petrol prices jumped 18.3 per cent, the largest gain since 2009. That said, gas prices have started to decline in recent weeks. If sustained, the drop suggests that energy prices will have less of an impact on inflation in April.
Even so, inflation is projected to stay near 6 per cent by the end of the year, which will keep pressure on the Fed chair Jerome Powell and his colleagues. The central bank is expected to hike interest rates by a half-point at its next policy meeting in May - and possibly at one or more meetings after that - while moving forward on plans to reduce its balance sheet. BLOOMBERG
Share with us your feedback on BT's products and services
