A key inflation measure jumped 6.6% in March, the most since 1982 2022-04-29 15:25:41

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Washington (AFP) – The measure of inflation closely followed by the Federal Reserve rose 6.6% in March from a year ago, the highest jump in 12 months in four decades, and further evidence that rising prices are putting pressure on household budgets and the health of the economy. .

However, there were signs in Friday’s report from the Commerce Department that inflation may slow from its accelerating pace and possibly approach a peak, at least for the time being.

And despite the price hikes, consumer spending rose faster than inflation for the third month in a row, indicating that the price hike did not dampen Americans’ desire to shop. The pandemic’s distortions to the economy are also fading as consumers shift their spending back to experiences like travel, concerts, and dining out. It comes on the heels of a two-year increase in pandemic spending on goods, things like exercise bikes, patio furniture and standing desks.

Shifting to services helps curb inflation because prices rise more slowly for services than for goods.

Excluding the particularly volatile food and energy categories, so-called core prices rose 5.2% in March from a year earlier. That was just below the 5.3% year-over-year increase in February, and it was the first time the number had fallen in 12 months since February 2021, before inflation started picking up. On a monthly basis, core prices rose 0.3% from February to March, the same rise from January to February. Previously, it had risen by half a point for four consecutive months.

“It’s really good to see the slowdown in (core inflation),” Bill Adams, chief economist at Comerica Bank, said in an email to clients. Inflation may have peaked in March, although the evidence remains a bit murky. But the inflation momentum is still very strong.”

Overall inflation jumped 0.9% in March compared to February, the largest one-month rise since 2005. Gas prices rose 18% in March alone. But it has slipped a bit since then this month, and inflation for another indicator may slowly begin to decline.

Consumers increased their spending last month by 1.1%, more than many economists had expected. The gains largely reflect higher prices at the fuel pump, the grocery store and other places where Americans shop for essentials. But even adjusted for inflation, spending rose 0.2%.

Sharp wage and salary gains help many consumers afford higher costs. A separate report from the Labor Department on Friday showed employee salaries and benefits jumped 1.4% in the first three months of the year, before inflation adjusted for. That was the highest such increase in records dating back two decades.

However, the gains are not large enough to fully offset the higher prices. Last year, wages and benefits jumped 4.7%. But after adjusting for inflation, they’re down 3.7%.

This decline helps explain why Americans are taking an increasingly negative view of the economy. About a third of respondents to a Gallup poll, published Thursday, cited inflation as the single most important financial problem facing their families today, up from fewer than one in ten who said so a year ago.

Consumers are sustaining their spending by digging into the extra savings they have amassed during the pandemic. The savings rate fell to 6.2% in March, the lowest level since 2013.

The pool of smaller savings may eventually constrain consumers, but that’s unlikely any time soon.

Americans have about $2.1 trillion more in savings than they did before COVID, with some of that money in the bank accounts of low-income Americans. Bank of America economists note that, according to bank data on checking and savings accounts, families earning less than $50,000 a year on average had about $3,000 in their accounts in February — nearly double the pre-pandemic level.

High inflation and strong wage increases are leading the Federal Reserve to plan a series of sharp interest rate increases in the coming months. The Fed is set to raise its benchmark short-term interest rate by half a point next week, a move faster than the typical quarter-point increase and the first increase of that size since 2000.

Outside the US, too, inflation is rising, forcing other central banks to either raise interest rates or come close to doing so. And in the 19 countries that use the euro, inflation hit a record high of 7.5% in April compared to a year ago.

In Europe, higher energy prices caused by the Russian invasion of Ukraine play a larger role in increasing inflation. The European Central Bank may raise interest rates for the first time since the pandemic in July, even as growth in the region has slowed due to the war.

The gloom that has gripped public opinion as inflation accelerates is a growing political threat to President Joe Biden and the Democrats running for Congress. Biden cited a strong labor market and strong consumer spending as evidence that his policies helped Americans. But that view absorbed a setback on Thursday, when the government reported that the economy had already contracted in the first three months of this year at an annual rate of 1.4%.

How consumers respond to inflated prices – and interest rates much higher than the Federal Reserve – is one of the unknowns facing the economy this year. Moody’s Analytics estimates that the average household spends an extra $327 each month buying the same things they bought a year ago.

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