Inflation raised at quickest pace since 1981 as rates climbed 8.5%

Inflation raised at quickest pace since 1981 as rates climbed 8.5%

Web Desk
April 12, 2022

Inflation raised at quickest pace since 1981 as rates climbed 8.5%

Consumer rates increase even more into the exosphere in March and the only comfort is that the painful bout of skyrocketing prices may have peaked.

Inflation hit a raw 40-year high as continuing surges in gasoline, food, and rent value more than offset moderating rates for second-hand cars.

The consumer rates index jumped 8.5% yearly, the fastest step since December 1981, the Labor Department told on Tuesday, probably cementing Federal Reserve plans for an unusually huge half-point interest rate walk early next month. That raises up from 7.9% in February and inflation now has notched new 40-year highs for five straight months.

Rates rise 1.2% from their February level, the sharpest monthly rise since September 2005.

What causes inflation?

Gasoline rates were the chief offender, jumping 18.3% and accounting for more than half the overall increase in costs. Average unleaded gas set a record $4.33 a gallon last month before relieving to $4.11 by Monday, according to AAA. Pump rates were up 48% from a year earlier.

Russia’s conquer over Ukraine has stoked last fall’s expansion surge by decreasing Russian oil providers and intensifying supply chain bottlenecks, especially for energy, wheat, and other commodities shipped from the region.

Meanwhile, the lack of workers in the U.S. is prompting companies to boost pay sharply to allure job candidates, guiding them to lift rates to maintain profit margins.

Keeping out volatile food and energy items, so-called core rates rise 6.5% yearly in March and the biggest advance since August 1982.

But on a monthly basis, core rates raised 0.3%, the smallest increase in six months and a sign such costs may be easing, Contingent Macro Research says.

Still, economist Kathy Bostjancic of Oxford Economics stated the report bolsters her view that the Federal Reserve will go up interest rates by a larger-than-normal half a percentage point at both its May and June meetings. She figures inflation won’t peak until May.

But Ian Shepherdson of Pantheon Macroeconomics said further softening in core rates could cause the Fed to pull back to a quarter-point increase at the June gathering.

In March, second-handed car rates offered some relief, decreasing by 3.8%. But that still left prices 35.3% higher than a year earlier.

But while rates for some goods are changing, the cost of services is increasing as the pandemic eases and consumers increasingly dine out, travel, and do other activities. Airfares surged 10.7%, pushing the annual rise to 23.6%. Hotel rates increased 3.3% monthly and 25.1% yearly.

Why are food prices going up?

Grocery rates increased 1.5 from the earlier month and 10% over the last year. Ukraine accounts for about 8% of the international wheat exports and war-related disruptions to shipments — or worries over such difficulty — appear to be rising up the values of wheat-related products, along with other commodities.

Breakfast cereal prices rise 2.4% monthly and 9.2% from a year ago. Rice, pasta, and cornmeal increased 2.8% monthly and 9.3% yearly. And fresh biscuits, rolls, and muffins rose 2.5% monthly and 10.8% from a year ago.

And rent raised 0.4% from the previous month and 4.4% annually.

How can we fix inflation?

Both Wells Fargo and Barclays reckon expansion likely peaked in March. A fading pandemic should help simplicity supply snarls and labor shortages this year, economists have said.

But don’t celebrate quite yet. “The descent in inflation is going to be painfully slow,” says Wells Fargo economist Sam Bullard.

And the war could extend the providing troubles and outsized rates gains longer than anticipated, says Barclay’s economist Pooja Sriram. Barclays estimates annually inflation will still be 6.4% in June and 4.4% at the end of the year.