A key alternative measure for the United States inflation reached its highest level in four decades as Russia’s fears grew invasion of Ukraine may lead to further widespread price spirals.
Federal data on Friday showed that the Consumer Price Index (PCE) rose 6.1 percent in January from a year earlier, the biggest annual increase since February 1982.
As the crisis in Ukraine shakes global oil markets, Americans can look forward to further rounds of painful price increases.
The average national price of gasoline jumped three cents on Friday alone to $ 3,572, according to the AAA gas price index – a 25-cent increase from a month ago and the highest level in eight years.
The Consumer Price Index (PCE) rose 6.1% in January from a year earlier, the largest annual increase since February 1982.
Annual increases in the PCE index are observed monthly from July to January
Fed Chairman Jerome Powell now faces difficult decisions on whether to move forward with rising interest rates to fight inflation
Fed President Jerome Powell is now facing difficult decisions on whether to continue raising interest rates to fight inflation as speculation grows that the United States may face a stagnant environment if the crisis in Europe slows economic growth. .
The so-called core PCE, which excludes volatile food and energy prices, rose 5.2 percent in January from a year earlier, the biggest increase since 1983.
The PCE’s core price index is the preferred measure of inflation by the Federal Reserve for its flexible target of 2 percent and is an additional measure to the more widely known consumer price index, which reached a 40-year high of 7.5 percent last month.
High inflation is wiping out wage increases for many Americans and could hamper economic growth.
The situation in Ukraine raises the prospect of further damaging inflation, sending the price of oil to rise worldwide.
Brent crude rose above $ 100 a barrel on Thursday for the first time since 2014. They retreated to about $ 98.7 a barrel early Friday.
The average national gasoline price jumped three cents on Friday to $ 3,572, according to the AAA gas price index
Russia is a major exporter (left) of crude oil and accounts for 7% (right) of all US oil imports
For every $ 10 increase in the price of oil, a gallon of gasoline becomes about 20 cents more expensive.
Higher gas prices have a wide impact on prices, as more than 70 percent of retail goods are delivered by truck.
According to Moody’s Analytics, oil prices at $ 100 a barrel would reduce GDP growth by 0.1 percentage points in the second quarter and fall by 0.5 percentage points in the third quarter.
The Federal Reserve is expected to start raising interest rates in March to curb inflation, with economists expecting up to seven raises this year.
But there are now fears that an economy hit by high oil prices may not be in a bad position to withstand the tightening of monetary policy.
“The implications of the evolving situation in Ukraine for the US medium-term economic outlook will also be a consideration in determining the appropriate rate of interest rate hike,” Cleveland Fed President Loretta Mester said Thursday.
Richmond Fed President Thomas Barkin said arguments for raising US interest rates remained “stable”, but also called the invasion a “disturbing” event that would force politicians to consider what might happen.
PCE is an additional measure to the more widely known consumer price index (above), which reached a 40-year high of 7.5 percent last month
Higher gas prices have a wide impact on prices, as more than 70 percent of retail goods are delivered by truck
The risks may be as obvious as high oil prices, which weigh on consumer spending and further increase inflation, or as unknown as how Russia can respond to US sanctions.
If Russia, the world’s second-largest oil exporter, starts withholding oil from world markets in response to sanctions, the shockwaves could be huge.
“The main demand is strong. The labor market is tight. Inflation is high and expanding, “Barkin said, describing a key case of rising interest rates.
“But I will say that it is disturbing to hear the news. As always, you need to start and think about where this thing might go that you may not have anticipated in the first place.
The Fed has two central mandates: keeping inflation at 2 percent a year and achieving “maximum employment.”
The two mandates often contradict each other because the Fed is trying to keep inflation under control by raising interest rates and trying to boost employment by lowering interest rates and pumping money into the economy by buying bonds.
The Fed sees controlled inflation as good because it encourages spending and business investment instead of hoarding money.
But uncontrolled inflation can be dangerous, undermining consumers’ purchasing power and hitting low-income families and older retirees hardest.
The US Federal Reserve cut its base rate on overnight to almost zero last year and flooded the economy with money through monthly bond purchases, which it is now cutting.