WASHINGTON (NewsNation) — Propelled by soaring costs for gas, housing, food and other necessities squeezing consumers, inflation in the United States hit a 40-year high in March.
The government’s consumer price index, released Tuesday morning, showed prices shot up 8.5% in March compared to 12 months earlier, according to a report by the Labor Department. This marks the fastest year-over-year inflation rise since December 1981 and surpasses the 7.9% 12-month increase in February, which itself set a 40-year high.
The government’s report also showed that inflation rose 1.2% from February to March, up from a 0.8% increase from January to February.
The March numbers are the first to capture the full surge in gasoline prices that followed Russia’s invasion of Ukraine on Feb. 24. Moscow’s brutal attacks have triggered far-reaching Western sanctions against the Russian economy and have disrupted global food and energy markets.
According to AAA, the average price of a gallon of gasoline — $4.10 — is up 44% from a year ago, though it has fallen back in the past couple of weeks. This comes as President Joe Biden Tuesday is set to suspend a federal rule preventing the sale of higher ethanol blend gasoline this summer in a bid to tamp down prices at the pump.
The escalation of energy prices has led to higher transportation costs for the shipment of goods and components across the economy, which, in turn, has contributed to higher prices for consumers.
The March price figures solidify expectations that the Federal Reserve will raise rates aggressively in the coming months to try to slow borrowing and spending and tame high inflation. The financial markets, in fact, now foresee much steeper rate hikes this year than Fed officials had signaled as recently as last month.
Economists point out that since the economy emerged from the depths of the pandemic, consumers have been gradually broadening their spending beyond goods to include more services. A result is that high inflation, which at first had reflected mainly a shortage of goods — from cars and furniture to electronics and sports equipment — has been gradually emerging in services, too, like travel, health care and entertainment.
Economists generally express doubt that even the sharp rate hikes that are expected from the Fed will manage to reduce inflation anywhere near the central bank’s 2% annual target by the end of this year. Luke Tilley, Wilmington Trust chief economist, said he expects year-over-year consumer inflation to still be 4.5% by the end of 2020. Before Russia’s invasion of Ukraine, he had forecast a much lower 3% rate.
Inflation, which had been largely under control for four decades, began to accelerate last spring as the U.S. and global economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in the spring of 2020.
The recovery, fueled by huge infusions of government spending and super-low interest rates, caught businesses by surprise, forcing them to scramble to meet surging customer demand. Factories, ports and freight yards struggled to keep up, leading to chronic shipping delays and price spikes.
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