|Posted by JJ The Psychotherapist on March 11, 2022 at 12:40 AM|
Inflation Hits New 40-Year High Under Biden
Consumer prices in the United States rose in February, resulting in the greatest annual increase in 40 years, and inflation is expected to rise more in the coming months as Russia's conflict against Ukraine drives up the cost of crude oil and other commodities.
The consumer price index rose 0.8 percent in February after rising 0.6 percent in January, according to the Labor Department on Thursday.
The CPI rose 7.9 percent in the year to February, the highest year-on-year increase since January 1982. This follows a 7.5 percent increase in January and was the seventh consecutive month of annual CPI readings over 6%.
According to Reuters surveyed economists, the CPI would rise 0.8 percent this year and rise 7.9 percent year on year.
Inflation has well exceeded the Federal Reserve's objective of 2.0 percent. The Federal Reserve of the United States is likely to begin raising interest rates next Wednesday in order to combat inflation, with experts predicting up to seven rate rises this year.
The CPI numbers from last month do not completely depict the surge in oil prices that followed Russia's invasion of Ukraine on February 24. Prices increased by more than 30%, with global benchmark Brent reaching a 2008 high of $139 a barrel before falling on Wednesday on rumors that the United Arab Emirates will urge fellow OPEC members to increase output.
The United States and its allies have placed punitive penalties on Moscow, with President Joe Biden prohibiting Russian oil shipments into the nation on Tuesday. Russia is the world's second-largest exporter of crude oil.
According to AAA statistics, gasoline prices in the United States are at an all-time high of $4.318 per gallon, up from $3.469 a month ago.
According to David Kelly, chief global strategist at JPMorgan Funds in New York, if gasoline averaged close to $4.20 a gallon for the year, the average household's spending would increase by more than $1,000. The Russia-Ukraine conflict, which has also pushed up wheat and other commodity prices, is expected to maintain inflation uncomfortably high into the second quarter.
"Our estimates suggest gasoline and natural gas prices are on track to add over 1 full percentage point or so to overall year-on-year prints in each month over the next ten months," said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.
Lower-income households suffer the burden of rising inflation since they spend a greater proportion of their earnings on food and transportation.
TIGHT LABOR MARKET
Inflation was already an issue prior to the Russia-Ukraine war, as a result of a shift in spending from services to products during the COVID-19 epidemic. Trillions of dollars in pandemic relief spending fueled an increase in spending that came up against capacity restrictions as the coronavirus disrupted labor market dynamics.
Excluding volatile food and energy components, the CPI rose 0.5 percent in February after rising 0.6 percent in January.
The so-called core CPI increased by 6.4 percent in the year to February. This was the highest year-on-year increase since August 1982, and it came on the heels of a 6.0 percent increase in January.
Rising rents and shortages of items such as automobiles are driving up the core CPI. Sharply dropping coronavirus infections are also predicted driving up demand for services such as air travel and hotel accommodations, keeping inflation high.
Prior to the Russia-Ukraine conflict, most analysts projected the annual core CPI rate to peak in March slightly around 6.5 percent before declining in April as substantial rises from the previous spring were removed from the calculation.
"We still think that is the most likely outcome, but there is a risk that energy passthrough effects from the latest spike in oil prices will slow that process," noted Lou Crandall, chief economist at Wrightson ICAP in Jersey City.
"Exactly how the Fed will balance the impact of higher oil prices on the inflation data against the ‘energy tax' hit to incomes and real spending remains unclear."
Despite monthly wage growth halting in February, tightening labor market conditions will lead to increased inflation. At the end of January, there were a near-record 11.3 million job opportunities. The labor-force shortfall was 4.8 million, or 2.9 percent of the labor force.
Separately, the Job Department said on Thursday that initial claims for state unemployment benefits jumped 11,000 to a seasonally adjusted 227,000 for the week ending March 5, remaining at levels consistent with a strong labor market.
Economists predicted 217,000 applications for the most recent week. Claims have fallen from a peak of 6.149 million in early April 2020.