US inflation jumped 8.5% last year, its highest level since 1981

WASHINGTON (AP) — Inflation has soared over the past year at its fastest rate in more than 40 years, with the costs of food, gas, housing and other necessities crushing consumers Americans and wiping out the pay raises that many people have received.

WASHINGTON (AP) — Inflation has soared over the past year at its fastest rate in more than 40 years, with the costs of food, gas, housing and other necessities crushing consumers Americans and wiping out the pay raises that many people have received.

The Department of Labor said on Tuesday that its consumer price index jumped 8.5% in March from 12 months earlier, the biggest year-on-year increase since 1981. Prices rose been pushed higher by strangled supply chains, strong consumer demand and disruptions in global food and energy markets made worse by Russia’s war on Ukraine. From February to March, inflation rose 1.2%, the biggest month-over-month jump since 2005. Gasoline prices drove more than half of that increase.

Across the economy, the year-over-year price spikes were widespread. Gasoline prices have climbed 48% over the past 12 months. Used car prices soared 35%, although they actually fell in February and March. Bedroom furniture is up 14.7%, men’s suits and coats 14.5%. Grocery prices jumped 10%, including increases of 18% for bacon and oranges.

Investors zeroed in on one bright spot in the report and drove stock prices higher: so-called core inflation, which excludes volatile food and energy prices, rose just 0.3% from February to March, the smallest monthly increase since September. Over the past year, however, core prices have risen 6.5%, the most since 1982.

“The fire of inflation is still out of control,” said Christopher Rupkey, chief economist at research firm FWDBONDS LLC.

The March inflation figures were the first to fully capture the spike in gasoline prices that followed the Russian invasion of Ukraine on February 24. Moscow’s attacks triggered far-reaching Western sanctions against Russia’s economy and disrupted food and energy markets. According to AAA, the average price of a gallon of gasoline – $4.10 – is up 43% from a year ago, although it has been falling over the past two weeks.

The acceleration in inflation occurred against the backdrop of a booming labor market and a strong global economy. In March, employers added a solid 431,000 jobs – the 11th consecutive month in which they added at least 400,000. For 2021, they added 6.7 million jobs, the most on record. Additionally, job openings are near record highs, layoffs are at their lowest level since 1968, and the unemployment rate is just above a half-century low.

Escalating energy prices, a potential threat to the long-term sustainability of the economy, have led to higher transportation costs for shipping goods across the economy, which has contributed to higher prices for consumers. Compression is particularly felt at the gas pump.

“That’s an extra dollar per gallon I pay to go to work in town,” Jason Emerson of Oakland, Calif., said as he loaded groceries into his car. “And then, you know, we have the tolls that just went up a dollar last year. My eggs also cost a dollar more. So everything goes up at least a dollar, which, you know , adds up.”

The latest inflation figures reinforce expectations that the Federal Reserve will aggressively raise interest rates in the coming months in an attempt to slow borrowing and spending and bring inflation under control.

Kathy Bostjancic, an economist at Oxford Economics, said she expects year-on-year inflation to hit 9% in May and then start “a slow descent”. With federal stimulus aid having expired, consumer demand could weaken as wages fall behind inflation, households further drain savings and the Fed hikes rates sharply, which could combine to slow the economy. inflation.

But it could take time. Robust spending, steady wage increases and chronic supply shortages are still fueling inflation. Additionally, housing costs, which account for about a third of the consumer price index, have risen, a trend that doesn’t seem likely to reverse any time soon.

Economists note that as the economy emerged from the depths of the pandemic, consumers gradually expanded their spending beyond goods to include more services. As a result, high inflation, which initially reflected mainly a shortage of goods – from cars and furniture to electronics and sports equipment – ​​also appeared in services, such as travel, healthcare and entertainment. Airline fares, for example, have climbed an average of nearly 24% over the past 12 months. The average cost of a hotel room has increased by 29%

The expected rapid pace of Fed rate hikes will make loans significantly more expensive for consumers and businesses. Mortgage rates in particular, although not directly influenced by the Fed, have soared in recent weeks, making buying a home more expensive. Many economists say they worry that the Fed waited too long to start raising rates and that it would end up acting so aggressively that it would trigger a recession.

The US public’s expectations for inflation over the next 12 months peaked – 6.6% – in a survey conducted by the Federal Reserve Bank of New York since 2013. Once public expectations in increases, they can be self-fulfilling: workers generally demand a higher wage to compensate for their expectations of price increases. Companies, in turn, raise their prices to cover their higher labor costs. This can trigger a wage-price spiral, which the country last endured in the late 1960s and 1970s.

Inflation, which had been largely under control for four decades, began accelerating last spring as the US and global economies rebounded with unexpected speed and strength from the brief but devastating coronavirus recession that began in spring 2020.

Many Americans received pay raises, but inflation more than wiped out those gains for most people. In February, after taking inflation into account, the average hourly wage fell by 2.7% compared to the previous year. It was the 12th consecutive monthly drop in inflation-adjusted wages.

Yet, for now, with a healthy labor market, inflation has yet to dampen overall consumer spending. Levi Strauss & Co., for example, says its price increases don’t seem to have fazed its customers.

That said, Adrian Mitchell, Macy’s chief financial officer, warns that chronically high inflation is likely to lead consumers to be more selective: they can spend less on department store goods and more on services like travel and dining out. .

“We believe the consumer is going to spend,” Mitchell said. “But are they going to spend on discretionary items that we sell, or are they going to spend on a plane ticket to Florida or plane trips or going out to restaurants more?”

In Atlanta, Shirley Hughes had to raise prices at her bakery, Sweet Cheats, due to soaring prices for items like eggs and milk. Two years ago, a 36-pound container of butter cost $75. Now it’s $145. Thirty dozen eggs were $50. Now they cost $75 – and even that price is only possible if Hughes picks them up herself, instead of having them delivered. She raised the price of her six-inch cake from $5 to $50.

So far, she says, people have generally accepted her higher prices. But there are limits. A customer wanted a six-inch cake delivered to her boyfriend, an hour away. Hughes told her the price of making the cake and delivering it would come to nearly $200.

The customer canceled.

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D’Innocenzio and Anderson reported from New York. AP video reporter Terence Chea in Oakland, Calif., contributed to this report.

Paul Wiseman, Anne D’innocenzio and Mae Anderson, The Associated Press