Economist Geoffrey Okamoto comments on the cut in the IMF’s global growth forecasts in connection with the Russia-Ukraine war.
Inflation is at its fastest pace in more than four decades, and consumer prices could rise further before they start falling.
The Labor Department reported last week that the consumer price index, which measures a variety of commodities including gasoline, health care, groceries and rent, rose 8.5% year on year in March, the fastest pace since December 1981. Prices rose 1 .2% for the one-month period from February, the largest month-on-month jump since 2005.
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The reading raised some hope among economists that inflation may have peaked: That’s because the biggest driver of higher inflation last month was higher energy costs – a reflection of Russia’s war in Ukraine, which pushed gas prices into the US USA to its highest level since 2008.
Energy prices are up an impressive 11% mom and 32% yoy in March. Gasoline is on average 48% higher than last year after rising 18.3% monthly in March as the Russian war in Ukraine prompted a rapid rise in oil prices.
“Inflation probably peaked in March, with the biggest contributors coming from gasoline and food prices, which could stabilize over the next few months,” said Robert Frick, business economist at Navy Federal Credit Union. “But high inflation will be with us at least through the summer because increases in other prices, particularly accommodation and services, will be sticky.”
Excluding gas and food prices, which are more volatile, so-called core prices rose 6.5% yoy in March – up from 6.4% in February. It was the steepest 12-month rise since August 1982. On a monthly basis, however, prices rose just 0.3% in March, compared to 0.5% in February. That was the lowest increase since September 2021.
People shop for groceries at a supermarket in Glendale, California, January 12, 2022. (ROBYN BECK/AFP via Getty Images / Getty Images)
Others are more skeptical that rising prices are beginning to ease: RSM chief economist Joe Brusuelas told FOX Business that he thinks the wave of inflation has “probably not peaked yet,” although the end could be in sight soon.
“If the status quo holds, we will almost certainly see a peak in inflation this quarter,” Brusuelas said. “The topline number should drop quite a bit in the coming months.”
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There are currently three major risks to the inflation outlook, all outside of how the US economy works, he said: a major conflict erupting in Eastern Europe, the European Union halting imports of oil and natural gas – which would push oil prices into the US Soaring, dragging gas prices with it – and ongoing COVID-19 lockdowns in China, further tightening already knotted supply chains.
“Inflation should ease here,” Brusuelas said. “But it’s probably going to be two to three years before we’re anywhere near 2% again,” which is the Federal Reserve’s preferred inflation target.