WASHINGTON (AP) — Inflation in the United States likely hit another four-decade high in March, with the ever-rising cost of groceries, gas, housing and other necessities straining consumers and threatening the economy.
The government’s consumer price index, to be released on Tuesday, is expected to show prices rising 8.4% from 12 months earlier, according to economists polled by data firm FactSet. That would be the highest annual inflation since December 1981. And it would surpass February’s 12-month rise of 7.9%, which itself hit a 40-year high.
Economists have also forecast consumer prices to have risen 1.1% from February to March. That would be the strongest month-on-month increase since 2005.
The March figures will be the first to capture the full rise in gasoline prices that followed Russia’s February 24 invasion of Ukraine. Moscow’s brutal attacks have unleashed sweeping Western sanctions on Russia’s economy and disrupted global food and energy markets. According to AAA, the average price of a gallon of gasoline — $4.11 — is up 44% year over year, though it’s been declining in recent weeks.
Escalating energy prices have resulted in higher transportation costs for 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,” noted Luke Tilley, chief economist at Wilmington Trust.
Economists point out that since the economy emerged from the depths of the pandemic, consumers have gradually expanded spending beyond goods to more services. One consequence is that high inflation, which initially was mainly due to shortages of goods – from cars and furniture to electronics and sports equipment – is beginning to appear in services such as travel, healthcare and entertainment.
If the March price numbers come in as expected, they will reinforce expectations that the Federal Reserve will hike rates aggressively in the coming months to try to slow borrowing and spending and tame high inflation. In fact, financial markets are now forecasting much steeper rate hikes this year than Fed officials were signaling last month.
The central bank’s rate hikes will make it significantly more expensive for consumers and businesses to borrow. Mortgage rates in particular have skyrocketed in recent weeks, although not directly affected by the Fed, making home buying more expensive. Many economists fear that the Fed has waited too long to hike rates and may end up acting so aggressively that it triggers a recession.
For now, the economy as a whole remains solid, with unemployment near a 50-year low and job vacancies near a record high. Still, skyrocketing inflation and its impact on Americans’ daily lives pose a political threat to President Joe Biden and his Democratic allies as they seek to maintain control of Congress in November’s midterm elections.
Economists generally doubt that even the sharp hikes expected by the Fed will bring inflation close to the central bank’s 2% target for the year by the end of this year. Tilley, economist at the Wilmington Trust, said he expects consumer inflation to still be 4.5% year-on-year through the end of 2020. Before Russia’s invasion of Ukraine, he had forecast a much lower rate of 3%.
In Tuesday’s government report, according to the FactSet survey, so-called trailing 12-month core inflation is expected to have reached 6.6% even excluding volatile food and energy prices. That would be the largest such jump from year to year since August 1982.
Inflation, which had been largely under control for four decades, began to accelerate last spring as the US and global economy recovered with unexpected speed and strength from the brief but devastating coronavirus recession that hit spring 2020 started.
The recovery, fueled by massive government spending and ultra-low interest rates, caught companies by surprise and forced them to scramble to meet rising customer demand. Factories, ports and rail yards struggled to keep up, leading to chronic delivery delays and price spikes.
Critics also partially blame the Biden administration’s March 2021 $1.9 trillion stimulus package, which included $1,400 in relief checks for most households, for overheating an already sizzling economy contributed.
Many Americans have received wage increases, but the pace of inflation has more than wiped out those gains for most people. In February, average hourly wages fell by 2.5% year-on-year after adjusting for inflation. It was the 11th straight monthly decline in inflation-adjusted wages.