US inflation has reached a 41-year high of 8.5 percent as rising gasoline and housing costs penalize consumers and erase gains from higher wages.
Tuesday’s inflation data is the first report to show the full impact of Russia’s invasion of Ukraine, which sent gas prices up 49 percent in March, compared to the same time a year ago.
Rising housing costs, which make up about a third of the consumer price index, are also driving up inflation as rents rise across the country.
The latest data showed a sharp rise in the prices of basic necessities, with grocery prices up 10 percent from a year ago, rents up 4.4 percent, clothing prices up 6.8 percent, and energy costs up 32 percent.
Shortly before the new report, President Joe Biden’s administration tried to preempt dire inflation news by blaming Russian President Vladimir Putin’s invasion of Ukraine.
The Consumer Price Index rose 8.5% in March compared to a year ago, the highest level in 41 years
President Joe Biden’s administration has tried to preempt dire inflation news by blaming Russian President Vladimir Putin’s invasion of Ukraine.
White House press secretary Jen Psaki said during a Monday briefing that the White House expects “inflation to be extraordinarily high because of Putin’s price hike.”
Inflation has become the biggest political threat to Biden and the Democrats in Congress as the crucial midterm elections approach in November. Small business owners now say in surveys that this is their primary economic concern as well.
Although Biden insists his policies are not responsible for the price hike, Republican pundits were quick to point fingers at his administration and Democrats in Congress.
“Prices are up, real wages are down, and families and small businesses are falling behind in the Biden economy,” Republican National Committee Chair Ronna McDaniel said in a statement in response to the latest inflation reading.
The Democrats’ reckless spending and failed policies have crushed Americans, and they don’t seem to care. Voters care, McDaniel added, and they’ll be sending a message in November.
White House economic adviser Jesse Lee responded in a tweet, saying that Republicans who blame Biden for inflation are “fully on board” with Putin.
The Labor Department said on Tuesday that the Consumer Price Index rose 1.2 percent in March from the previous month, up 8.5 percent from a year ago.
It is the largest annual gain since December 1981. Excluding volatile food and energy prices, prices rose 6.5 percent in the twelve months ending in March.
On April 6th, 1983, protesters are seen after the 1981-1982 recession, which came after the Federal Reserve imposed aggressive interest rates to rein in out-of-control inflation. Economists now project a 40% chance of a new recession in the next year
Primary dwelling rent rose 4.4% in March compared to a year ago, the fastest increase since 2007
The last time inflation was that high, Reagan was in office and the “Great Inflation” was coming to an end.
The “Great Inflation” period from 1965 to 1982 was marked by a high inflation rate that exceeded 14 percent by 1980
The new data puts inflation at its highest level since 1981, when the period known as the “Great Inflation” came to a close.
Spurred on by the failure of monetary policy and two oil crises in 1973 and 1979, the period from 1965 to 1982 was marked by high inflation, which reached 14 percent by 1980.
Consumers suffered greatly from rising prices, and anger over the inflation crisis contributed to Ronald Reagan’s victory over incumbent President Jimmy Carter in 1980.
“Inflation is as violent as a thief, as terrifying as an armed robber, and as murderous as a murderer,” Reagan said during the campaign, dedicating the early years of his presidency to addressing the issue.
Reagan’s controversial economic policy had four main pillars: cutting government spending, lowering taxes, lowering regulations, and tightening the money supply by raising interest rates.
naysayers claimed at the time that Reagan’s policies would push prices higher, but history proved them wrong and inflation soon returned to sustainable levels.
Even before the Russian war drove up prices, robust consumer spending, steady wage increases, and chronic supply shortages sent consumer inflation in the United States to its highest level in four decades.
In addition, housing costs, which make up about a third of the consumer price index, have escalated, a trend that seems unlikely to reverse anytime once landlords try to recoup the losses they took during the pandemic.
Gas prices rose in March in response to the Russian invasion, which contributed significantly to the inflation rate last month.
According to AAA, the average price of a gallon of gasoline on Tuesday — $4.10 — was up 43 percent from a year ago, although it was down from record levels in the past two weeks.
On Monday, Biden announced a temporary suspension of rules banning the sale of ethanol-blended gas during the summer months in an effort to reduce the pain at the pump.
Typically, E15 gasoline — gasoline that uses a 15 percent ethanol blend — is not sold from June to September due to air quality concerns.
The March inflation figures are the first record of the full hike in gasoline prices that followed Russia’s invasion of Ukraine on February 24.
Moscow’s brutal attacks have triggered far-reaching Western sanctions on the Russian economy and disrupted global food and energy markets.
Escalating energy prices have pushed up the transportation costs of shipping goods and components across the economy, which in turn has contributed to higher prices for consumers.
“The war in Ukraine has complicated the inflation outlook,” Luke Tilley, chief economist at the Wilmington Trust, told the Associated Press.
Economists point out that since the economy emerged from the depths of the pandemic, consumers have gradually expanded their spending beyond goods to include more services.
The result is that high inflation, which initially reflected shortages of goods — from cars and furniture to electronics and sporting equipment — gradually began to show up in services as well, such as travel, health care, and entertainment.
The latest evidence of price acceleration will bolster expectations that the Federal Reserve will aggressively raise interest rates in the coming months in an effort to slow borrowing and spending and tame inflation.
Financial markets now expect a steeper rate hike this year than Federal Reserve officials indicated as recently as last month.
The expected rapid pace of federal interest rate increases will make loans sharply more expensive for consumers and businesses.
Mortgage rates, in particular, although not directly affected by the Fed, have risen in recent weeks, making it more expensive to buy homes.
Many economists say they worry that the Fed has waited too long to start raising interest rates and may end up acting so aggressively that it triggers a recession.
Economists polled by Reuters now put the probability of a recession next year at 40 percent.
Gas prices have retreated from record levels set last month, but are still well above historical averages
A cyclist rides in front of a price board at a San Francisco gas station on April 4
Inflation has now replaced “labor quality” as the number one problem for small businesses, according to a new survey by the National Federation of Independent Business.
“Inflation has affected small businesses across the country and is now their most important business problem,” said NFIB chief economist Bill Dunkelberg.
“With inflation, persistent staff shortages, and supply chain disruptions, small business owners remain pessimistic about their future business conditions.”
Thirty-one percent of owners surveyed reported that inflation was the single most important issue with their business, up five points from February and the highest reading since the first quarter of 1981.
Inflation, which had been largely under control for four decades, began to accelerate last spring as the US 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 massive infusions of government spending and ultra-low interest rates, caught companies by surprise, forcing them to scramble to meet surging customer demand.
Factories, ports, and shipping yards struggled to keep up, leading to chronic shipping delays and price hikes.
Critics are also pointing to the Biden administration’s $1.9 trillion stimulus program in March 2021, which included $1,400 relief for most families, to help heat an already ailing economy.
Many Americans are receiving wage increases, but the pace of inflation has wiped out those gains for most people.
In February, after accounting for inflation, average hourly wages fell 2.5 percent from a year earlier. This was the eleventh consecutive monthly decline in inflation-adjusted wages.
Story development, more to follow.