WASHINGTON–Consumer prices rose 8.5% in the year through March, reaching the fastest inflation rate since 1981, according to new data from the Bureau for Labor Statistics.
“A new month brought a new 40-year inflation record on a year-over-year basis,” said NAFCU’s chief economist, Curt Long. “The headline figure was strongly influenced by surging gas prices in March. However, core inflation was more subdued than expected, and markets reacted positively to the result. The FOMC will still raise rates by 50 basis points in early May, but may be in a position to move more methodically over the second half of the year.”
According to the federal data, the Russian invasion of Ukraine has played a big role in the jump in fuel prices, with the U.S. average for a gallon of regular gas peaking at $4.33 on March 11.
But gas is not the entire story.
“Stripping out volatile fuel and food, so-called core prices climbed at a brisk 6.5% in the year through March, up from 6.4%” in the year through February,” noted the New York Times. “Even so, the core index offered a rare glimmer of good inflation news: It slowed down a bit on a monthly basis, rising 0.3% from February, compared with 0.5% the prior month.
The Times further noted that March’s data may represent a high-water mark for inflation, some economists have said.
Easing Pressure on Supply Chain
“Overall price increases could begin abating in the coming months in part because gasoline prices have come down somewhat — a gallon cost $4.10 on Tuesday, according to AAA,” according to the Times. “Researchers have been expecting consumers to stop buying so many goods, like cars and appliances, potentially taking pressure off overburdened supply chains and allowing prices for those products to moderate.”
Added Gregory Daco, the chief economist at Ernst & Young’s strategy consultancy, EY-Partheno, “These numbers are likely to represent something of a peak.” Still, he told the Times, it will be critical to watch whether the core numbers slow down on a monthly basis this spring and summer.
One Fed Governor’s View
Lael Brainard, a Federal Reserve governor who is the Biden administration’s nominee to serve as the central bank’s vice chair, said a slight cooling in monthly inflation outside of food and fuel as a welcome sign to economic policymakers.
Brainard, who acknowledged the pain that high inflation was causing families, particularly emphasized that the core inflation rate, which strips out the volatile prices of food and fuel, was slightly lower on a monthly basis.
“It’s very welcome to see the moderation in this category,” Brainard said of the core goods numbers, according to the Times. “I’ll be looking to see whether we continue to see moderation in the months ahead.”
Brainard added she would not put too much weight on any one month’s number, she said, but added that she would watch to see if a declining number of product categories posted outsize price increases in the months ahead.