WASHINGTON–With the Federal Reserve set to meet this week on rates, the price index it watches most closely climbed 6.6% in the year through March, according to new federal data, the fastest pace of inflation since 1982.
But much of the gain in the Personal Consumption Expenditures price index was driven by a pop in energy prices early in Russia’s invasion of Ukraine, along with rising food costs, the New York Times reported. After volatile food and fuel prices are stripped out, the index climbed by a more “muted” 5.2% in the year through March, the report added.
On a monthly basis, that core measure picked up by 0.3%, slightly slower than its pace the month before.
While there has been some moderation in the increases, it is not expected to be enough to prevent the Federal Reserve’s Open Market Committee from making a large rate increase at its meeting this week — expected to be 50 basis points––especially when wages are climbing swiftly.
‘Remained Too High’
“Officials spent much of 2021 hoping that pandemic-era cost increases would fade as supply chains returned to normal. Instead, inflation has remained too high for the Fed’s comfort for a year, and it has become broader with time,” noted the Times.
The new Bureau of Economic Analysis data show price increases were heavily driven by goods shortages in 2021, but costs are now climbing briskly across a range of services, which could make quick inflation more persistent.
“As employers struggle to hire enough workers to meet strong consumer demand, they are paying higher wages,” the Times stated in its analysis. “Rising labor expenses could prompt some businesses to charge more, and bigger paychecks help households to continue spending on furniture, restaurant meals, and other goods and services.”
The Labor Department reported last week that a measure of employment costs picked up by 1.4% in the first quarter of 2022, which was higher than had been expected. Private-sector wages and salaries rose 1.3% according to the measure.
Seeking to Slow Borrowing
“Many Fed officials now expect to raise rates back to a neutral setting — a bit above 2%— by the end of the year as they try to slow down borrowing, temper demand and allow supply to catch up,” according to the Times. “The goal is to help cool off inflation so that it does not become locked into consumer and business expectations, which might make it a more permanent feature of America’s economy.”
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