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The Consumer Price Index (CPI) swelled by 7.9 percent from February 2021 through February 2022, the U.S. labor department reported, the fastest clip since January 1982’s 8.4 percent when the country was gripped by dragflation, a combination of rising prices and a shrinking economy.
Prices rose 0.8 percent from January through February.
The hike edged past the consensus outlook among economists Dow Jones surveyed; they had foreseen a 7.8-percent annual rise and 0.7 percent monthly.
Excluding the always-volatile prices of food and energy, the so-called “core” CPI rose 6.4 percent year on year.
Energy was guilty of one-third of the CPI’s increase, rising 3.5 percent; rental housing costs were up more than 4 percent over the 12-month span, the highest one-year boost since May 1991. Prices for clothing and transportation services also rose notably.
Gasoline prices were up 6.6 percent from January and have shot up 53 percent year over year, including more than 24 percent in just the last five weeks.
The war in Ukraine, Western sanctions on Russia, shippers’ refusal to load Russian oil, and insurance companies’ refusal to guarantee crude’s safe passage through the war-ravaged Black Sea have all contributed to soaring fuel prices.
A general rule, cited by Jerome Powell in comments earlier this month, holds that every $10 increase in oil’s price adds 0.2 of a percentage point to inflation.
Oil prices rocketed up by $40 early in the Ukraine war and on 14 March sank down to the low $100s, barely $10 above their pre-war price.
Inflation racked up high numbers across categories:
Grocery prices notched a 12-month increase of 8.6 percent; restaurant menu prices are up 6.8 percent.
Because Russia and Ukraine account for almost a third of the world’s wheat exports, almost a fifth of corn shipments, and as much as 80 percent of vegetable oils, economists expect food prices to continue to rise for some time to come.
Air fares took off, rising 12.7 percent in February, year over year.
The cost of appliances grew in the past three months after dipping slightly last fall, gaining 11.1 percent over the year.
New cars cost 12.4 percent more than a year ago; used vehicles’ prices slipped 0.2 percent in February but still commanded a whopping 41.2 percent more in the past 12 months.
Due to the war in Europe, “we’re going to see upward pressure on inflation, at least for a while,” Powell said in Congressional testimony earlier this month.
Inflation will speed its pace even more this month as the Ukraine war tightens commodities markets and boosts fuel prices, analysts told The Wall Street Journal.
During the COVID-era economic shutdown, the U.S. Federal Reserve flooded markets with near-zero-interest-rate loans, Congress sent thousands of dollars to every U.S. household, boosting spending at a time when factory production was curtailed or shuttered and supply lines were disrupted.
Those factors fueled inflation, which the Fed chose not to respond to until it felt the jobs market had recovered.
It was not until his 21 November Congressional testimony that Fed chair Jerome Powell admitted it was time to “retire” the idea that inflation is “temporary” or “transitory,” which we reported in “The Powell Push: For Better or Worse” (7 Dec 2021).
“We’re pretty far behind the curve,” Eric Rosengren, former president of the Federal Reserve Bank of Boston, said in a comment quoted by the WSJ.
TREND FORECAST: The most quoted economist in the mainstream media forecast that inflation will peak soon, perhaps even this month. We disagree.
The lockdown in China will again disrupt supply chains and the Ukraine War is a wild card that, should it accelerate beyond its borders, will drive inflation higher as more sanctions on Russia push their treasured commodities such as oil, coal, wheat, iron, steel, aluminum, nickel, and palladium prices higher.
TREND FORECAST: The Fed will begin a series of interest rate hikes as its committee meets today and tomorrow. However, given the Ukraine War, the Fed will move cautiously.
As a result, it will not raise rates enough to materially impact inflation in the near or long term. Thus, equities will not be brought down sharply by the hikes… and neither will the housing markets.
Rising prices for basic necessities is often the spark that ignites political unrest. In America, Biden and the Democrats will pay the price at the polls this November’s midterm elections.
Although Republicans have offered no plan to rein in prices or for governance in general, they will reap the political rewards from inflation and from the damage that sanctions on Russia will do to the U.S. economy.