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U.S. inflation hits highest in 40 years, threatening the economy

Newsman: U.S. inflation data With ever-rising costs for food, gasoline, house rents, and other necessities sets a record highest in 40-year . The Bureau of Labor Statistics said  Tuesday, the price inflation squeezing consumers and threatening the economy, inflation in the United States likely set yet another four-decade high in March And id surging gas prices and skyrocketing climbing to 8.5 percent.  Inflation soared over the past year at its fastest pace in more than 40 years. Many Americans have been receiving pay increases, but the pace of inflation has more than wiped out those gains for most people. In February, after accounting for inflation, average hourly wages fell 2.5% from a year earlier. It was the 11th straight monthly drop in inflation-adjusted wages.

Grocery prices increased 1.5 from the prior month and 10% over the past year. Ukraine accounts for about 8% of the world’s wheat exports and war-related disruptions to shipments are pushing up the prices of wheat-related products, along with other commodities.

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

Other foods added to steady, longstanding advances. The price of bacon was up 18.2% from a year ago; chicken, 13.4%; fish, 11.3%; and eggs, 11.2%. Rent increased 0.4% from with the prior month and 4.4% annually.

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

All signs point to the Federal Reserve moving forward on its plans for a series of interest rate hikes to help slow the economy and fight inflation. Last month, it raised its key federal funds rate from near zero to a range of 0.25 percent to 0.5 percent. It is currently projecting at least six more rate hikes this year.

The higher funds rates are already affecting mortgage lending volumes. Some large U.S. banks are tightening their credit requirements for consumers seeking home loans.

A survey by the financial data group FactSet had predicted that the inflation reading for March would come in at 8.4 percent year-over-year — the highest rate since December 1981 and an increase from February’s 7.9 percent.

The government’s report also showed that inflation rose 1.2% from February to March, up from a 0.8% increase from January to February.

The government’s consumer price index being released Tuesday is expected to show that prices shot up 8.4% from 12 months earlier, according to economists surveyed by the data firm FactSet. That would mark the fastest year-over-year inflation since December 1981. And it would surpass the 7.9% 12-month increase in February, which itself set a 40-year high.

In Tuesday’s government report, even excluding volatile food and energy prices, so-called core inflation for the past 12 months is expected to have hit 6.6%, according to the FactSet survey. That would be the biggest such year-over-year jump since August 1982.

The Labor Department said that its consumer price index jumped 8.5% in March from 12 months earlier — the biggest year-over-year increase since December 1981. Prices have been driven up by bottlenecked supply chains, robust consumer demand and disruptions to global food and energy markets worsened by Russia’s war against Ukraine.

 Although gas prices have begun to trend downward recently, the change was not reflected in the inflation reading for March — a month that saw record high prices at the pump. Gas prices jumped 48 percent year-over-year, the BLS said, and climbed 18.3 percent from February.

Meanwhile, rental rates have now experienced eight-consecutive months of increases, and now sit above the pre-pandemic trend. Rents climbed 4.4 percent in March year-over-year, compared with 4.2 percent in February. The average rent for a two-bedroom home in the U.S. is now about $2,000, according to research from Rent.com — up 22 percent on a year-over-year basis.

However, “core” inflation, which excludes volatile food and gas prices, climbed 6.5 percent year-over-year and 0.3% month-over-month — slightly less than the figures expected by FactSet analysts. The soft reading was driven by the biggest drop in used vehicle prices since 1969.

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The March inflation numbers were the first to capture the full surge in gasoline prices that followed Russia’s invasion of Ukraine on Feb. 24. Moscow’s brutal attacks have triggered far-reaching Western sanctions against the Russian economy and have disrupted global food and energy markets. According to AAA, the average price of a gallon of gasoline — $4.10 — is up 43% from a year ago, though it has fallen back in the past couple of weeks.

The escalation of energy prices has led to higher transportation costs for the shipment of goods and components across the economy, which, in turn, has contributed to higher prices for consumers.

Economists point out that since the economy emerged from the depths of the pandemic, consumers have been gradually broadening their spending beyond goods to include more services. A result is that high inflation, which at first had reflected mainly a shortage of goods — from cars and furniture to electronics and sports equipment — has been gradually emerging in services, too, like travel, health care and entertainment.

The central bank’s rate increases will make loans sharply more expensive for consumers and businesses. Mortgage rates, in particular, though not directly influenced by the Fed, have rocketed higher in recent weeks, making home buying more expensive. Many economists say they worry that the Fed has waited too long to begin raising rates and might end up acting so aggressively as to trigger a recession.

Economists generally express doubt that even the sharp rate hikes that are expected from the Fed will manage to reduce inflation anywhere near the central bank’s 2% annual target by the end of this year.

Critics also blame, in part, the Biden administration’s $1.9 trillion March 2021 stimulus program, which included $1,400 relief checks for most households, for helping overheat an already sizzling economy.

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